AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2005
*
REGISTRATION NO. 333-122452
333-______________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 2 to
FORM S-3
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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ACACIA RESEARCH CORPORATION
(Exact
(Exact name of registrant as specified in its charter)
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DELAWARE 95-4405754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3670
(Primary Standard Industrial
Classification Code Number)
--------------------
ACACIA RESEARCH CORPORATION
DELAWARE | | 95-4405754 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
500 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIANewport Center Drive, 7th Floor
Newport Beach, California 92660
(949) 480-8300
(Address,
(Address, including zip code, and telephone number, including area code, of registrant'sregistrant’s principal executive offices)
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RAYMOND
Raymond A. LEE, ESQ.
GREENBERG TRAURIG,Lee, Esq.
Greenberg Traurig, LLP
650 TOWN CENTER DRIVE, SUITETown Center Drive, Suite 1700
COSTA MESA, CALIFORNIA
Costa Mesa, California 92626
(714) 708-6500
(Address,
(Address, including zip code, and telephone number, including area code, of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable When deemed appropriate after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [ ]
£
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. |X|
S
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
£
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
£
If delivery of this prospectusForm is expecteda registration statement pursuant to be madeGeneral Instruction I.D. or a post-effective amendment that shall become effective upon filing with the commission pursuant to Rule 434, please462(e) under the Securities Act, check the following box. [ ]
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£ If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. £
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered (1) | Proposed Maximum Aggregate Offering Price (2) | Amount of Registration Fee (2) |
Acacia Research-CombiMatrix Common Stock, $0.01 par value | | |
Acacia Research-Acacia Technologies Common Stock, $0.01 par value | | |
| Warrants | | |
| Total | $75,000,000.00 | $7,498 (3) |
(1)Securities registered hereunder may be sold separately, together or as units with other securities registered hereunder. The securities registered hereunder include (i) an indeterminate number of shares of Acacia Research-CombiMatrix common stock and Acacia Research-Acacia Technologies common stock as may be sold, from time to time, by the registrant and an indeterminate number of shares of Acacia Research-CombiMatrix common stock and Acacia Research-Acacia Technologies common stock as shall be issuable upon conversion of warrants registered hereunder, and (ii) an indeterminate number of warrants, representing rights to purchase Acacia Research-CombiMatrix common stock or Acacia Research-Acacia Technologies common stock registered hereunder.
(2)Calculated pursuant to Rule 457(o) under the Securities Act. Pursuant to Rule 457(o) under the Securities Act and General Instruction II.D to Form S-3, the table does not specify information as to the amount to be registered, proposed maximum offering price per unit or proposed maximum aggregate offering price. In no event will the maximum aggregate offering price of all securities issued pursuant to this registration statement exceed $75,000,000.
(3)The filing fee due of $8,025 has been offset in the amount of $527, such amount to be applied from Registration Statement No. 333-112885, initially filed by Acacia Research Corporation on February 17, 2004.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT NOTICE. THE SELLING STOCKHOLDERSCOMPANY MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND THE SELLING STOCKHOLDERSWE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY JURISDICTION WHERE THE OFFER OR SALE OF THESE SECURITIES IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED ____________,
PROSPECTUS
3,938,832 SHARES
ACACIA RESEARCH CORPORATION
ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCK
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This Registration Statement contains a combined prospectus relatesand constitutes an amendment to the resaleFile No. 333-112885 pursuant to Rule 429. The combined prospectus includes (i) an indeterminate number of up to 3,938,832 shares of Acacia Research-CombiMatrix common stock and Acacia Research-Acacia Technologies common stock registered under File No. 333-112885, and (ii) an indeterminate number of warrants, representing rights to purchase Acacia Research Corporation,Research-CombiMatrix common stock or Acacia Research-Acacia Technologies common stock registered under File No. 333-112885, with a Delaware corporation, thatmaximum aggregate offering price of $4,162,054.
The information in this preliminary prospectus is not complete and may be changed without notice. We may not sell these securities until the selling stockholdersregistration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any jurisdiction where the offer or sale of these securities is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 25, 2006
PROSPECTUS
$75,000,000
ACACIA RESEARCH CORPORATION
ACACIA RESEARCH - COMBIMATRIX COMMON STOCK
ACACIA RESEARCH - ACACIA TECHNOLOGIES COMMON STOCK
WARRANTS
By this prospectus, we may offer, from time to time.
The selling stockholders include those holders namedtime:
| · | shares of our Acacia Research - CombiMatrix common stock; |
| · | shares of our AcaciaResearch - Acacia Technologies common stock; |
| · | warrants to purchase shares of our Acacia Research - CombiMatrix common stock and our Acacia Research - Acacia Technologies common stock; or |
| · | any combination of the foregoing. |
We will provide specific terms of each issuance of these securities in the table under the
section titled "selling stockholders" beginning on page 28 ofsupplements to this prospectus. The shares of our Acacia Research-Acacia Technologies common stock being offered
byYou should read this prospectus were previously issuedand any supplement carefully before you decide to the selling stockholders in
unregisteredinvest.
This prospectus may not be used to consummate sales of the securities.
We will not receive any of the proceeds from the sale of the shares of our
Acacia Research-Acacia Technologies common stockthese securities unless it is accompanied by the selling stockholders. We
will bear the cost of the registration of these shares.
Subject to the restrictions described in thisa prospectus the selling
stockholders (directly, or through agents or dealers designated from time to
time) may sell the shares of our Acacia Research-Acacia Technologies common
stock being offered by this prospectus from time to time, on terms to be
determined at the time of sale. The prices at which these stockholders may sell
the shares will be determined by the prevailing market price for the shares or
in negotiated transactions.
supplement
Our Acacia Research-Acacia TechnologiesResearch - CombiMatrix common stock is quotedtraded on the Nasdaq National Market under the ticker symbol "ACTG."“CBMX.” On April 29, 2005,21, 2006, the last reported salesales price of our Acacia Research-AcaciaResearch - CombiMatrix common stock was $2.09 per share. Our AcaciaResearch - Acacia Technologies common stock as reportedis traded on the Nasdaq National Market was $6.09 per share.
Ourunder the ticker symbol “ACTG.” On April 21, 2006, the last reported sales price of our Acacia Research-AcaciaResearch - Acacia Technologies common stock is intended to reflect the
separate performance of Acacia Technologies group, one of two divisions of
Acacia Research Corporation. The Acacia Technologies group is not a separate
legal entity. Holders of Acacia Research-Acacia Technologies common stock are
stockholders of Acacia Research Corporation. As a result, holders of Acacia
Research-Acacia Technologies common stock continue to be subject to all of the
risks of an investment in Acacia Research Corporation and all of its businesses,
assets and liabilities.
was $9.98 per share.
INVESTING IN OUR ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCKSECURITIES INVOLVES SUBSTANTIAL RISKS.SEE "RISK FACTORS"“RISK FACTORS” BEGINNING ON PAGE 53 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR ACACIA RESEARCH-ACACIA
TECHNOLOGIES COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT NOTICE. THE SELLING STOCKHOLDERSWE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND THE SELLING STOCKHOLDERSWE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE OF THESE SECURITIES IS NOT PERMITTED.
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The date of this prospectus is
May 2, 2005
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The information in this preliminary prospectus is not complete and may be
changed without notice. The selling stockholders may not sell these securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an offer to sell
these securities, and the selling stockholders are not soliciting offers to buy
these securities, in any jurisdiction where the offer or sale of these
securities is not permitted.
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___________, 2006TABLE OF CONTENTS
Page
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Prospectus Summary...........................................................1
Risk Factors.................................................................5
Cautionary Statement Concerning Forward-Looking Information.................27
Use of Proceeds.............................................................28
Selling Stockholders........................................................28
Relationship of Selling Stockholders to the Company.........................29
Plan of Distribution........................................................29
Experts.....................................................................31
Legal Matters...............................................................32
Where You Can Find More Information.........................................32
Material Changes............................................................32
Incorporation of Certain Information by Reference...........................32
| |
PROSPECTUS SUMMARY | 1 |
| |
RISK FACTORS | 3 |
| |
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION | 22 |
| |
USE OF PROCEEDS | 23 |
| |
PLAN OF DISTRIBUTION | 23 |
| |
EXPERTS | 24 |
| |
LEGAL MATTERS | 24 |
| |
WHERE YOU CAN FIND MORE INFORMATION | 24 |
| |
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE | 25 |
| |
INDEMNIFICATION | 25 |
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCK.YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY "RISK
FACTORS"“RISK FACTORS” AND OUR FINANCIAL STATEMENTS AND RELATED NOTES INCORPORATED BY REFERENCE ON PAGE 32 25 BELOW.
BUSINESS AND BASIS OF PRESENTATION
SEPARATE GROUP PRESENTATION AND CLASSES OF STOCK. Acacia Research
Corporation is comprised of two operating groups. On December 11, 2002, our
stockholders voted in favor of a recapitalization transaction, which became
effective on December 13, 2002, whereby we created two new classes of common
stock called Acacia Research-CombiMatrix common stock ("AR-COMBIMATRIX STOCK")
and Acacia Research-Acacia Technologies common stock ("AR-ACACIA TECHNOLOGIES
STOCK"), and divided our existing Acacia Research Corporation common stock into
shares of the two new classes of common stock. AR-CombiMatrix stock is intended
to reflect separately the performance of Acacia Research Corporation's
CombiMatrix group. AR-Acacia Technologies stock is intended to reflect
separately the performance of Acacia Research Corporation's Acacia Technologies
group. Although the AR-CombiMatrix stock and the AR-Acacia Technologies stock
are intended to reflect the performance of our different business groups, they
are both classes of common stock of Acacia Research Corporation and are not
stock issued by the respective groups.
AR-CombiMatrix stock and AR-Acacia Technologies stock are intended to
reflect the separate performance of the respective divisions of Acacia Research
Corporation. The CombiMatrix group and the Acacia Technologies group are not
separate legal entities. Holders of AR-CombiMatrix stock and AR-Acacia
Technologies stock are stockholders of Acacia Research Corporation. As a result,
holders of AR-CombiMatrix stock and AR-Acacia Technologies stock continue to be
subject to all of the risks of an investment in Acacia Research Corporation and
all of its businesses, assets and liabilities. The consolidated financial
statements incorporated by reference into this Prospectus include the accounts
of Acacia Research Corporation and its wholly owned and majority-owned
subsidiaries, including those in both the CombiMatrix group and the Acacia
Technologies group.
Financial effects arising from one group that affect Acacia Research
Corporation's results of operations or financial condition could, if
significant, affect the results of operations or financial condition of the
other group and the market price of the class of common stock relating to the
other group. Any division net losses of the Acacia Technologies group or of the
CombiMatrix group, and dividends or distributions on, or repurchases of,
AR-Acacia Technologies stock or AR-CombiMatrix stock, will reduce the assets of
Acacia Research Corporation legally available for payment of dividends on
AR-Acacia Technologies stock or AR-CombiMatrix stock. Acacia Research
Corporation's creditors are unaffected by the division of our business into two
operating groups or our division of our common stock into two classes. The
assets Acacia Research Corporation attributes to one of the groups could be
subject to the liabilities of the other group. Creditors of Acacia Research
Corporation may still make claims against all of our assets and earnings from
both operating groups. However, our business is conducted by our operating
subsidiaries, and each of our subsidiaries operates in only one of the two
groups. Creditors of one subsidiary may not make claims against the assets of
another subsidiary, absent a separate guaranty from the other subsidiary. None
of our subsidiaries currently guaranties the obligations of any other
subsidiary.
LIMITATIONS OF SEPARATE CLASSES OF COMMON STOCK. Although our two
classes of stock are intended to reflect the separate performances of the
respective groups, we cannot assure you that the market values of the two
classes will in fact reflect the performance of the respective groups as we
intend because holders do not have a separate and exclusive interest in the
respective groups. Holders of AR-Acacia Technologies stock are common
stockholders of Acacia Research Corporation and do not hold a direct or
exclusive interest in the Acacia Technologies group. As such, they are subject
to all risks associated with an investment in Acacia Research Corporation and
all of our businesses, assets and liabilities.
The performance of our respective groups is measured by the financial
results of our separate groups, as reflected in the separate financial
statements included in our periodic reports filed with the SEC and in this
prospectus by reference to our periodic reports. The financial statements of
Acacia Technologies group reflect the financial condition, results of
operations, and cash flows of the businesses included therein. The financial
statements of the Acacia Technologies group include the accounts or assets of
1
Acacia Research Corporation specifically attributed to the Acacia Technologies
group and were prepared using amounts included in Acacia Research Corporation's
consolidated financial statements. Financial effects arising from one group that
affect Acacia Research Corporation's results of operations or financial
condition could, if significant, affect the results of operations or financial
condition of the other group and the market price of the class of common stock
relating to the other group. Any division net losses of the CombiMatrix group or
the Acacia Technologies group and dividends or distributions on, or repurchases
of, AR-CombiMatrix stock or AR-Acacia Technologies stock or repurchases of
preferred stock of Acacia Research Corporation will reduce the assets of Acacia
Research Corporation legally available for payment of dividends on AR-Acacia
Technologies stock or AR-CombiMatrix stock.
VOTING RIGHTS OF AR-ACACIA TECHNOLOGIES COMMON STOCK. Holders of
AR-Acacia Technologies stock and AR-CombiMatrix stock vote together as a single
class (except in certain limited circumstances). Each share of AR-CombiMatrix
stock entitles the holder to one vote. Each share of AR-Acacia Technologies
stock entitles the holder, for any particular vote, to a number of votes equal
to the average market value of a share of AR-Acacia Technologies stock divided
by the average market value of a share of AR-CombiMatrix stock over a specified
20-trading day period ending on the 10th trading day prior to the record date
for determining the stockholders entitled to vote. Accordingly, the relative per
share voting rights of the AR-CombiMatrix stock and the AR-Acacia Technologies
stock will fluctuate depending on changes in the relative market values of
shares of such classes of common stock. The purpose of the floating voting power
is to link voting power to relative economic interests in Acacia Research
Corporation.
EXAMPLES OF THE CALCULATION OF THE NUMBER OF VOTES EACH SHARE OF
AR-ACACIA TECHNOLOGIES STOCK COULD BE ENTITLED ON ALL MATTERS ON WHICH HOLDERS
OF AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK VOTE AS A SINGLE CLASS.
EXAMPLE #1: If the average market values for the 20-trading day
valuation period were $4 for the AR-Acacia Technologies stock and $6 for the
AR-CombiMatrix stock, each share of AR-CombiMatrix stock would have one vote and
each share of AR-Acacia Technologies stock would have 0.67 votes based on the
following calculation:
$4/$6 = 0.67 votes
Based on the assumptions in this example, and assuming 20 million
shares of AR-CombiMatrix stock and 20 million shares of AR-Acacia Technologies
stock were outstanding, the shares of AR-CombiMatrix stock would represent
approximately 60% of our total voting power and the shares of AR-Acacia
Technologies stock would represent approximately 40% of our total voting power.
EXAMPLE #2: If the average market values for the 20-trading day
valuation period were $5 for the AR-Acacia Technologies stock and $5 for the
AR-CombiMatrix stock, each share of AR-CombiMatrix stock would have one vote and
each share of AR-Acacia Technologies stock would have one (1) vote based on the
following calculation:
$5/$5 = 1.0 vote
Based on the assumptions in this example, and assuming 20 million
shares of AR-CombiMatrix stock and 20 million shares of AR-Acacia Technologies
stock were outstanding, the shares of AR-CombiMatrix stock would represent
approximately 50% of our total voting power and the shares of AR-Acacia
Technologies stock would represent approximately 50% of our total voting power.
EXAMPLE #3: If the average market values for the 20-trading day
valuation period were $6 for the AR-Acacia Technologies stock and $4 for the
AR-CombiMatrix stock, each share of AR-CombiMatrix stock would have one vote and
each share of AR-Acacia Technologies stock would have 1.50 votes based on the
following calculation:
$6/$4 = 1.50 votes
Based on the assumptions in this example, and assuming 20 million
shares of AR-CombiMatrix stock and 20 million shares of AR-Acacia Technologies
stock were outstanding, the shares of AR-CombiMatrix stock would represent
approximately 40% of our total voting power and the shares of AR-Acacia
Technologies stock would represent approximately 60% of our total voting power.
2
These examples, each of which is based on the assumption that the total
number of issued and outstanding shares of each class is 20,000,000, are
summarized in the table below:
Assumed Share Price Voting Rights Relative Total Votes Voting Power
- ------------------- ------------- -------------------- ------------
EXAMPLE #1:
AR-CombiMatrix $6 1.0 vote/share 20,000,000 60%
AR-Acacia Technologies $4 0.67 votes/share 13,333,333 40%
EXAMPLE #2:
AR-CombiMatrix $5 1.0 vote/share 20,000,000 50%
AR-Acacia Technologies $5 1.0 vote/share 20,000,000 50%
EXAMPLE #3:
AR-CombiMatrix $4 1.0 vote/share 20,000,000 40%
AR-Acacia Technologies $6 1.50 votes/share 30,000,000 60%
IN THESE EXAMPLES WE HAVE PROVIDED A BETTER UNDERSTANDING OF THE
MECHANICS SURROUNDING THE CALCULATION OF VOTING POWER. IT SHOULD NOT BE ASSUMED
THAT THE EXAMPLES USED ARE IN ANY WAY INDICATIVE OF THE RESPECTIVE COMMON STOCK
TRADING OR ACTUAL RELATIVE VOTING POWER AS OF THE DATE OF THIS PROSPECTUS.
PLEASE SEE THE RISK FACTOR TITLED "THE HOLDERS OF AR-COMBIMATRIX STOCK AND THE
HOLDERS OF AR-ACACIA TECHNOLOGIES STOCK WILL HAVE CERTAIN LIMITS ON THEIR
RESPECTIVE VOTING POWERS." ON PAGE 21 BELOW REGARDING THE CURRENT RELATIVE
VOTING POWER FOR OUR ANNUAL MEETING.
The holders of AR-CombiMatrix common stock and AR-Acacia Technologies
common stock do not have any rights to vote separately as a class on any matter
coming before stockholders of Acacia Research Corporation, except for certain
limited class voting rights provided under Delaware law. In addition to the
approval of the holders of a majority of the voting power of all shares of
common stock voting together as a single class, the approval of a majority of
the outstanding shares of the AR-CombiMatrix stock or the AR-Acacia Technologies
stock, voting as a separate class, would be required under Delaware law to
approve any amendment to the restated certificate of incorporation that would
change the par value of the shares of the class or alter or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely. As permitted by Delaware law, the restated certificate of
incorporation provides that an amendment to the restated certificate of
incorporation that increases or decreases the number of authorized shares of
AR-CombiMatrix stock or AR-Acacia Technologies stock will only require the
approval of the holders of a majority of the voting power of all shares of
common stock, voting together as a single class, and will not require the
approval of the holders of the class of common stock affected by such amendment,
voting as a separate class.
OUR BUSINESS. Our intellectual property licensing business, referred to
as the "Acacia Technologies group," acquires, enforces and licenses intellectual
property, and is comprised of the following subsidiaries: Acacia Media
Technologies Corporation, Acacia Internet Access Corporation, Soundview
Technologies, Incorporated, Soundbreak.com, Incorporated, Acacia Research
Investment Corporation, Acacia Technologies Services Corporation, Acacia Global
Acquisition Corporation, Acacia Capital Management Corporation, Acacia Patent
Acquisition Corporation, Acacia Media Technologies Corporation - Mexico, Acacia
Media Technologies Corporation - Europe, AV Technologies LLC, Broadcast
Innovation LLC, Data Innovation LLC, Financial Systems Innovation LLC,
Information Technology Innovation LLC, InternetAd LLC, IP Innovation LLC, KY
Data Systems LLC, New Medium LLC, TechSearch LLC, VData LLC, Spreadsheet
Automation Corporation, Computer Cache Coherency Corporation, Microprocessor
Enhancement Corporation. The revenue in our Acacia Technology group is derived
from license fees from our patent portfolios held by our various subsidiaries
that comprise the group. Our subsidiaries are often forced to bring civil
lawsuits to enforce our patents before receiving any such revenues. For example,
Acacia Media Technologies Corporation licenses and enforces our Digital Media
Technology patents and receives royalty payments from companies that utilize our
patented technology in products they sell and services they provide. It is also
engaged in litigation to enforce these patents, seeking royalties from companies
that are infringing upon these patents.
3
Our life sciences business, referred to as the "CombiMatrix group," is
comprised of the following subsidiaries: CombiMatrix Corporation, Advanced
Material Sciences, Inc., CombiMatrix International Holding Corporation and
CombiMatrix K.K. Our CombiMatrix group operates a life sciences technology
business with a proprietary system for rapid, cost competitive creation of DNA
and other compounds on a programmable semiconductor chip. This system is
comprised of a semiconductor chip with an array of microelectrodes, each of
which is capable of initiating and performing a synthetic chemical reaction that
allows for strands of DNA and other molecules to be assembled over each
microelectrode. We refer to this system as an array. The instruments we use to
manufacture these arrays can do so in a matter of days and at a price that the
CombiMatrix group believes is attractive to researchers who use tools such as
our arrays in conducting genetic research. This proprietary technology has
applications in the areas of genomics, proteomics, biosensors, drug discovery,
drug development, diagnostics, combinatorial chemistry, material sciences and
nanotechnology. We are exploring opportunities for use of our array system with
pharmaceutical and biotechnology companies in the Asian market.
We have sustained substantial losses since our inception resulting in
an accumulated deficit, as of December 31, 2004, of $188.2 million on a
consolidated basis. We are continuing to invest in acquisitions of additional
patent portfolios in our Acacia Technologies group and research and development
in our CombiMatrix group. As a result, it is more likely than not that we will
incur losses for the foreseeable future.
We are incorporated under the laws of the State of Delaware. Our
principal executive offices are located at 500 Newport Center Drive, Newport
Beach, California 92660, and our telephone number is (949) 480-8300. Our website
is located at www.acaciaresearch.com. Information contained on our website is
not incorporated by reference into this prospectus, and you should not consider
information on our website a part of this prospectus.
The group financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America, and
taken together, comprise all the accounts included in the corresponding
consolidated financial statements of Acacia Research Corporation. The financial
statements of the groups reflect the financial condition, results of operations,
and cash flows of the businesses included therein. The financial statements of
the groups include the accounts or assets of Acacia Research Corporation
specifically attributed to the groups and were prepared using amounts included
in Acacia Research Corporation's consolidated financial statements.
THE OFFERING
AR-Acacia Technologies stock offered by selling
stockholders...................................... 3,938,832 shares
Common stock issued and outstanding as of
March 28, 2005.................................... 27,212,852 shares of AR-Acacia Technologies stock
31,200,496 shares of AR-CombiMatrix stock
Use of proceeds...................................... We will not receive any proceeds from the sale of the shares of
AR-Acacia Technologies stock covered by this prospectus
Nasdaq National Market Symbol........................ ACTG
The selling stockholders may sell the shares of our AR-Acacia
Technologies stock subject to this prospectus from time to time and may also
decide not to sell all the shares they are allowed to sell under this
prospectus. The selling stockholders will act independently of our company in
making decisions with respect to the timing, manner and size of each sale.
Furthermore, the selling stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of shares or otherwise.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we
are filingfiled with the Securities and Exchange Commission, or
the "SEC," on behalf of the
selling stockholders, who are named in the table under the section titled
"Selling Stockholders" beginning on page 28 of this prospectus, utilizingSEC, using a
"shelf"“shelf” registration process. Under this
shelf registration process,
the selling
stockholderswe may
from timeoffer and sell any combination of our Acacia Research - CombiMatrix common stock (“AR-CombiMatrix stock”), Acacia Research - Acacia Technologies common stock (“AR-Acacia Technologies stock”) and warrants to
time until this registration statement is
withdrawn from registration by us, sell the shares ofpurchase our AR-CombiMatrix stock or our AR-Acacia Technologies stock
being offered under this prospectus in one or more
offerings.
4
offerings for total proceeds of up to $75,000,000. This prospectus provides you with a general description of the securities that the selling stockholderswe may offer. ToEach time we offer to sell securities, we will provide a supplement to this prospectus that will contain specific information about the extent required,terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. It is important for you to consider the number of shares of our AR-Acacia Technologies stock to be sold, the purchase
price, the public offering price, the names of any agent or dealer and any
applicable commission or discount with respect to a particular offering by any
Selling Stockholder may be set forthinformation contained in an accompanying prospectus supplement.
You should read both this prospectus and any prospectus supplement together with the additional information described inunder the section titled "Incorporation of
Certain Information By Reference," beginning on page 32 below.
heading “Where You Can Find More Information.”You should rely only on the information contained in this prospectus or any related prospectus supplement, including the content of all documents now or in the future incorporated by reference into the registration statement of which this prospectus forms a part. We have not authorized and the selling
stockholders may not authorize, anyone to provide you with different information. We are not and the selling stockholders are not, making an offer of the shares of our AR-Acacia Technologiescommon stock or warrants to be sold under this prospectus in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus or any related prospectus supplement is accurate as of any date other than the date on the front cover of this prospectus or the related prospectus supplement, or that the information contained in any document incorporated by reference is accurate as of any date other than the date of the document incorporated by reference. Other than as required under the federal securities laws, we undertake no obligation to publicly update or revise such information, whether as a result of new information, future events or any other reason. We are required to update this prospectus and the registration statement with a post-effective amendment to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement, including this prospectus.
PRIOR TO MAKING A DECISION ABOUT INVESTING IN OUR AR-ACACIA TECHNOLOGIESCOMMON STOCK, YOU SHOULD CAREFULLY CONSIDER THE SPECIFIC RISKS CONTAINED IN THE SECTION TITLED
"RISK FACTORS"ENTITLED “RISK FACTORS” BELOW, AND ANY APPLICABLE PROSPECTUS SUPPLEMENT, TOGETHER WITH ALL OF THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT OR APPEARING IN THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
BUSINESS
Acacia Research Corporation is comprised of two operating groups.
Our life sciences business, referred to as the “CombiMatrix group,” a division of Acacia Research Corporation, is comprised of our wholly owned subsidiary, CombiMatrix Corporation and CombiMatrix Corporation’s subsidiaries, CombiMatrix Molecular Diagnostics, Inc. and CombiMatrix K.K. and includes all corporate assets, liabilities and transactions related to Acacia Research Corporation’s life sciences business. The CombiMatrix group is seeking to become a broadly diversified biotechnology business, through the development of proprietary technologies, products and services in the areas of drug development, genetic analysis, molecular diagnostics, nanotechnology research, defense and homeland security markets, as well as other potential markets where its products could be utilized. Among the technologies being developed by the CombiMatrix group is a platform technology to rapidly produce customizable arrays, which are semiconductor-based tools for use in identifying and determining the roles of genes, gene mutations and proteins. This technology has a wide range of potential applications in the areas of genomics, proteomics, biosensors, drug discovery, drug development, diagnostics, combinatorial chemistry, material sciences and nanotechnology. Other technologies include proprietary molecular synthesis and screening methods for the discovery of potential new drugs. CombiMatrix Molecular Diagnostics, Inc., a wholly owned subsidiary located in Irvine, California, is exploring opportunities for the CombiMatrix group’s arrays in the field of molecular diagnostics. CombiMatrix K.K., a previously wholly owned Japanese corporation located in Tokyo, Japan, has existed for the purposes of exploring opportunities for CombiMatrix Corporation’s array system with pharmaceutical and biotechnology companies in the Asian market. In January 2006, CombiMatrix Corporation sold 67% of its ownership interest in CombiMatrix K.K. to a third party.
The Acacia Technologies group, a division of Acacia Research Corporation, develops, acquires and licenses patented technologies. The Acacia Technologies group is primarily comprised of a number of Acacia Research Corporation’s wholly owned subsidiaries and limited liability companies. The Acacia Technologies group also includes all corporate assets, liabilities, and related transactions of Acacia Research Corporation attributed to Acacia Research Corporation’s intellectual property licensing and enforcement business. The Acacia Technologies group currently controls 42 patent portfolios, which include over 160 U.S. patents, and certain foreign counterparts, covering technologies used in a wide variety of industries, including the following:
·Audio/Video Enhancement & Synchronization ·Broadcast Data Retrieval ·Compact Disk Technology ·Computer Memory Cache Coherency ·Computing Device Performance Technology ·Continuous Television Viewer Measuring Technology ·Credit Card Fraud Protection ·Data Encryption ·Digital Media Transmission, or DMT® ·Dynamic Manufacturing Modeling ·Enhanced Internet Navigation ·Hearing Aid ECS ·High Quality Image Processing ·High Resolution Optics | ·Image Resolution Enhancement ·Information Monitoring Technology ·Interactive Television ·Laptop Connectivity ·Microprocessor Enhancement ·Multi-Dimensional Bar Codes ·Network Data Back-Up ·Picture Archiving & Communication Systems ·Product Activation ·Resource Scheduling ·Rotational Video Imaging ·Spreadsheet Automation ·User Activated Internet Advertising ·Web Conferencing & Collaboration Software Technology |
On December 11, 2002, our stockholders voted in favor of a recapitalization transaction, which became effective on December 13, 2002, whereby we created two new classes of common stock called Acacia Research-CombiMatrix common stock, or AR-CombiMatrix stock, and Acacia Research-Acacia Technologies common stock, or AR-Acacia Technologies stock, and divided our existing Acacia Research Corporation common stock into shares of the two new classes of common stock. AR-CombiMatrix stock is intended to reflect separately the performance of Acacia Research Corporation’s CombiMatrix group. AR-Acacia Technologies stock is intended to reflect separately the performance of Acacia Research Corporation’s Acacia Technologies group. Although the AR-CombiMatrix stock and the AR-Acacia Technologies stock are intended to reflect the performance of our different business groups, they are both classes of common stock of Acacia Research Corporation and are not stock issued by the respective groups. As a result, holders of Acacia Research-Acacia Technologies stock and Acacia Research-CombiMatrix stock continue to be subject to all of the risks of an investment in Acacia Research Corporation and all of its businesses, assets and liabilities. The assets Acacia Research Corporation attributes to one group could be subject to the liabilities of the other group. Included in the CombiMatrix group and the Acacia Technologies group are certain wholly owned subsidiaries that are not material, quantitatively or qualitatively, either individually or in the aggregate, to either group, or to Acacia Research Corporation as a whole.
In January 2006, our board of directors approved a plan for our wholly owned subsidiary, CombiMatrix Corporation, to become an independent public company. We expect to complete the transaction in the third quarter of 2006, subject, however, to determining that there are no significant negative tax consequences to our company or our shareholders and completing the required filings with the Securities and Exchange Commission, or SEC. If the conditions are met, Acacia Research Corporation will redeem all of the issued and outstanding shares of AR-CombiMatrix common stock for all of the common stock of CombiMatrix Corporation, which will register its common stock under the Securities and Exchange Act of 1934. Following the redemption, CombiMatrix Corporation will apply to list its shares for trading on a national exchange.
Acacia Research Corporation, a Delaware corporation, was originally incorporated in California in January 1993 and reincorporated in Delaware in December 1999. Our website address is www.acaciares.com. Our principal executive office is located at 500 Newport Center Drive, 7th Floor, Newport Beach, California 92660. Our telephone number is (949) 480-8300.
RISK FACTORS
AN INVESTMENT IN OUR AR-ACACIA TECHNOLOGIES STOCK INVOLVES A HIGH
DEGREE OF RISK. BEFORE INVESTING IN OUR AR-ACACIA TECHNOLOGIES STOCK, YOU SHOULD
CAREFULLY CONSIDER THE SPECIFIC RISKS DETAILED IN THIS "RISK FACTORS" SECTION
AND ANY APPLICABLE PROSPECTUS SUPPLEMENT, TOGETHER WITH ALL OF THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT. IF ANY
OF THESE RISKS OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION COULD BE HARMED, THE PRICE OF OUR AR-ACACIA TECHNOLOGIES STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
An investment in our stock involves a number of risks. Before making a decision to purchase our securities, you should carefully consider all of the risks described in this prospectus. If any of the risks discussed in this prospectus actually occur, our business, financial condition and results of operations could be materially adversely affected. If this were to occur, the trading price of our securities could decline significantly and you may lose all or part of your investment.
GENERAL RISKS
WE HAVE A HISTORY OF LOSSES AND WILL PROBABLY INCUR ADDITIONAL LOSSES IN THE
FUTURE.
We have a history of losses and will probably incur additional losses in the future.
We have sustained substantial losses since our inception resulting in an accumulated deficit, as of December 31, 2004,2005, of $188.2$206.9 million on a consolidated basis. We may never become profitable, or if we do, we may nevernot be able to sustain profitability. We expect to incur significant research and development, marketing, general and administrative and legal expenses. As a result, it is more likely than not that we will incur losses for the foreseeable future.
IF WE, OR OUR SUBSIDIARIES, ENCOUNTER UNFORESEEN DIFFICULTIES AND CANNOT OBTAIN
ADDITIONAL FUNDING ON FAVORABLE TERMS, OUR BUSINESS MAY SUFFER.
If we, or our subsidiaries, encounter unforeseen difficulties and cannot obtain additional funding on favorable terms, our business may suffer.
Acacia Research Corporation's consolidated cash and cash equivalents along with short-term investments totaled $52.4$59.2 million at December 31, 2004.
2005.
To date, the CombiMatrix group has relied primarily upon selling equity securities, as well as payments from strategic partners, to generate the funds needed to finance the implementation of the CombiMatrix
group'sgroup’s business strategies. To date, the Acacia Technologies group has relied primarily upon selling of equity securities and payments from our
V-chip technology licensees
5
(primarily in 2001) and Digital Media Transmission ("DMT(R)") technology
licensees (2003 to current) to generate the funds needed to finance the operations of the Acacia Technologies group. See the risk factor entitled,
"Although we recognized significant revenue from the V-chip technology patent
held by the Acacia Technologies group, this patent expired in July 2003, and if
the group does not develop other recurring sources of revenue, its financial
condition will be adversely impacted" on page 9 of this prospectus.
We cannot assure you that we will not encounter unforeseen difficulties, including the outside influences identified above, that may deplete our capital resources more rapidly than anticipated. As a result, our subsidiary companies may be required to obtain additional financing through bank borrowings, debt or equity financings or otherwise, which would require us to make additional investments or face a dilution of our equity interests. Any efforts to seek additional funds could be made through equity, debt or other external financings. Nevertheless, we cannot assure that additional funding will be available on favorable terms, if at all. If we fail to obtain additional funding when needed for our subsidiary companies and ourselves, we may not be able to execute our business plans and our business may suffer.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE CANNOT ASSURE THAT OUR
OPERATIONS WILL BE PROFITABLE.
Because we have a limited operating history, we cannot assure that our operations will be profitable.
We commenced operations in 1993 and, accordingly, have a limited operating history. In addition, certain of our subsidiary companies are in the early stages of development and/or operations and have limited operating histories. We also recently acquired eleven (11) new subsidiaries, and although we conducted customary due diligence before completing the acquisition, we cannot assure that our projections for profitability will be accurate because of our limited history with these new companies. You should consider our prospects in light of the risks, expenses and difficulties frequently encountered by companies with such limited operating histories. Since we have a limited operating history, we cannot assure you that our operations will be profitable or that we will generate sufficient revenues to meet our expenditures and support our activities.
We have sustained substantial losses since our inception resulting in an accumulated deficit as of December 31, 2004,2005, of $188.2$206.9 million on a consolidated basis. If we continue to incur operating losses in future periods, we may not have enough money to expand our business and our subsidiary companies'companies’ businesses in the future.
FAILURE TO EFFECTIVELY MANAGE OUR GROWTH COULD PLACE STRAINS ON OUR MANAGERIAL,
OPERATIONAL AND FINANCIAL RESOURCES AND COULD ADVERSELY AFFECT OUR BUSINESS AND
OPERATING RESULTS.
Failure to effectively manage our growth could place strains on our managerial, operational and financial resources and could adversely affect our business and operating results.
Our growth has placed, and is expected to continue to place, a strain on our managerial, operational and financial resources. Further, as our subsidiary companies'companies’ businesses grow, we will be required to manage multiple relationships. Any further growth by us or our subsidiary companies or an increase in the number of our strategic relationships will increase this strain on our managerial, operational and financial resources. This strain may inhibit our ability to achieve the rapid execution necessary to successfully implement our business plan.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO EXPAND OUR ORGANIZATION TO MATCH
THE GROWTH OF OUR SUBSIDIARIES.
Our future success depends on our ability to expand our organization to match the growth of our subsidiaries.
As our subsidiaries grow, the administrative demands upon Acacia Research Corporation will grow, and our success will depend upon our ability to meet those demands. These demands include increased accounting, management, legal services, staff support,
for our board of directors, and general office services. We may need to hire additional qualified personnel to meet these demands, the cost and quality of which is dependent in part upon market factors outside of our control. Further, we will need to effectively manage the training and growth of our staff to maintain an efficient and effective workforce, and our failure to do so could adversely affect our business and operating results.
THE AVAILABILITY OF SHARES FOR SALE IN THE FUTURE COULD REDUCE THE MARKET PRICE
OF OUR COMMON STOCK.
6
The availability of shares for sale in the future could reduce the market price of our common stock.
In the future, we may issue securities to raise cash for acquisitions. We may also pay for interests in additional subsidiary companies by using a combination of cash and our common stock or just our common stock. We may also issue securities convertible into our common stock. Any of these events may dilute your ownership interest in our company and have an adverse impact on the price of our common stock.
In addition, sales of a substantial amount of our common stock in the public market, or the perception that these sales may occur, could reduce the market price of our common stock. This could also impair our ability to raise additional capital through the sale of our securities.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER OF ACACIA RESEARCH CORPORATION THAT MIGHT
OTHERWISE RESULT IN OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE
OF THEIR SHARES.
Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover of Acacia Research Corporation that might otherwise result in our stockholders receiving a premium over the market price of their shares.
Provisions of Delaware law and our certificate of incorporation and bylaws could make the following more difficultdifficult: the acquisition of our company by means of a tender offer, proxy contest or otherwise, and the removal of incumbent officers and directors. These provisions include:
o Section 203 of the Delaware General Corporation Law, which
prohibits a merger with a 15%-or-greater stockholder, such as
a party that has completed a successful tender offer, until
three years after that party became a 15%-or-greater
stockholder;
o amendment of our bylaws by the stockholders requires a
two-thirds approval of the outstanding shares;
o the authorization in our certificate of incorporation of
undesignated preferred stock, which could be issued without
stockholder approval in a manner designed to prevent or
discourage a takeover;
o provisions in our bylaws eliminating stockholders' rights to
call a special meeting of stockholders, which could make it
more difficult for stockholders to wage a proxy contest for
control of our board of directors or to vote to repeal any of
the anti-takeover provisions contained in our certificate of
incorporation and bylaws; and
o the division of our board of directors into three classes with
staggered terms for each class, which could make it more
difficult for an outsider to gain control of our board of
directors.
| · | section 203 of the Delaware General Corporation Law, which prohibits a merger with a 15%-or-greater stockholder, such as a party that has completed a successful tender offer, until three years after that party became a 15%-or-greater stockholder; |
| · | amendment of our bylaws by the stockholders requires a two-thirds approval of the outstanding shares; |
| · | the authorization in our certificate of incorporation of undesignated preferred stock, which could be issued without stockholder approval in a manner designed to prevent or discourage a takeover; |
| · | provisions in our bylaws eliminating stockholders’ rights to call a special meeting of stockholders, which could make it more difficult for stockholders to wage a proxy contest for control of our board of directors or to vote to repeal any of the anti-takeover provisions contained in our certificate of incorporation and bylaws; and |
| · | the division of our board of directors into three classes with staggered terms for each class, which could make it more difficult for an outsider to gain control of our board of directors. |
Such potential obstacles to a takeover could adversely affect the ability of our stockholders to receive a premium price for their stock in the event another company wants to acquire us.
WE MAY INCUR INCREASED COSTS AS A RESULT OF RECENTLY ENACTED AND PROPOSED
CHANGES IN LAWS AND REGULATIONS RELATING TO CORPORATE GOVERNANCE MATTERS
We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations relating to corporate governance matters.
Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted or proposed by the Securities and Exchange Commission and by
the American Stock Exchange,NASDAQ, will result in increased costs to us as we evaluate the implications of any new rules and respond to their requirements. New rules could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs to comply with any new rules and regulations.
RISKS RELATING TO THE ACACIA TECHNOLOGIES GROUP
The risk factors beginning on this page discuss risks relating to the
Acacia Technologies group. Because each holder of AR-Acacia Technologies stock,
is a holder of the common stock of one company, Acacia Research Corporation, the
risks associated with the CombiMatrix group could affect the AR-Acacia
Technologies stock. As such, we also urge you to read carefully the section
"Risks Relating to the CombiMatrix Group" below.
7
BECAUSE OUR BUSINESS OPERATIONS ARE SUBJECT TO MANY UNCONTROLLABLE OUTSIDE
INFLUENCES, WE MAY NOT SUCCEED.
Our Acacia Technologies group's business operations are subject to
numerous risks from outside influences, including the following:
o NEW LEGISLATION, REGULATIONS OR RULES RELATED TO OBTAINING
PATENTS OR ENFORCING PATENTS COULD SIGNIFICANTLY INCREASE
ACACIA TECHNOLOGIES GROUP'S OPERATING COSTS AND DECREASE ITS
REVENUE.
Our Acacia Technology group acquires patents with enforcement
opportunities and is spending a significant amount of resources to enforce those
patents. If new legislation, regulations or rules are implemented either by
Congress, the United States Patent and Trademark Office, or the courts that
impact the patent application process, the patent enforcement process or the
rights of patent holders, these changes could negatively affect our expenses and
revenue. For example, new rules regarding the burden of proof in patent
enforcement actions could significantly increase the cost of our enforcement
actions, and new standards or limitations on liability for patent infringement
could negatively impact our revenue derived from such enforcement actions. While
we are not aware that any such changes are likely to occur in the foreseeable
future, we cannot assure you that such changes will not occur.
o TRIAL JUDGES AND JURIES OFTEN FIND IT DIFFICULT TO UNDERSTAND
COMPLEX PATENT ENFORCEMENT LITIGATION, AND AS A RESULT, WE MAY
NEED TO APPEAL ADVERSE DECISIONS BY LOWER COURTS IN ORDER TO
SUCCESSFULLY ENFORCE OUR PATENTS.
It is difficult to predict the outcome of patent enforcement litigation
at the trial level. It is often difficult for juries and trial judges to
understand complex, patented technologies, and as a result, there is a higher
rate of successful appeals in patent enforcement litigation than more standard
business litigation. Such appeals are expensive and time consuming, resulting in
increased costs and delayed revenue. Although we diligently pursue enforcement
litigation, we cannot predict with significant reliability the decisions made by
juries and trial courts.
o MORE PATENT APPLICATIONS ARE FILED EACH YEAR RESULTING IN
LONGER DELAYS IN GETTING PATENTS ISSUED BY THE UNITED STATES
PATENT AND TRADEMARK OFFICE.
Our Acacia Technology group holds and continues to acquire pending
patents. We have identified a trend of increasing patent applications each year,
which we believe is resulting in longer delays in obtaining approval of pending
patent applications. The delays could cause delays in recognizing revenue from
these patents and could cause us to miss opportunities to license patents before
other competing technologies are developed or introduced into the market. See
the subheading "COMPETITION IS INTENSE IN THE INDUSTRIES IN WHICH OUR
SUBSIDIARIES DO BUSINESS AND AS A RESULT, WE MAY NOT BE ABLE TO GROW OR MAINTAIN
OUR MARKET SHARE FOR OUR TECHNOLOGIES AND PATENTS," on page 9 below.
o FEDERAL COURTS ARE BECOMING MORE CROWDED, AND AS A RESULT,
PATENT ENFORCEMENT LITIGATION IS TAKING LONGER.
Our patent enforcement actions are almost exclusively prosecuted in
federal court. Federal trial courts that hear our patent enforcement actions
also hear criminal cases. Criminal cases always take priority over our actions.
As a result, it is difficult to predict the length of time it will take to
complete an enforcement action. Moreover, we believe there is a trend in
increasing numbers of civil lawsuits and criminal proceedings before federal
judges, and as a result, we believe that the risk of delays in our patent
enforcement actions will have a greater affect on our business in the future
unless this trend changes.
o ANY REDUCTIONS IN THE FUNDING OF THE UNITED STATES PATENT AND
TRADEMARK OFFICE COULD HAVE AN ADVERSE IMPACT ON THE COST OF
PROCESSING PENDING PATENT APPLICATIONS AND THE VALUE OF THOSE
PENDING PATENT APPLICATIONS.
The assets of Acacia Technologies group consists of patent portfolios,
including pending patent applications before the U.S. Patent and Trademark
Office (USPTO). The value of our patent portfolios is dependent upon the
issuance of patents in a timely manner, and any reductions in the funding of the
USPTO could negatively impact the value of our assets. Further, reductions in
funding from Congress could result in higher patent application filing and
maintenance fees charged by the USPTO, causing an unexpected increase in our
expenses.
8
o COMPETITION IS INTENSE IN THE INDUSTRIES IN WHICH OUR
SUBSIDIARIES DO BUSINESS AND AS A RESULT, WE MAY NOT BE ABLE
TO GROW OR MAINTAIN OUR MARKET SHARE FOR OUR TECHNOLOGIES AND
PATENTS.
Our Acacia Technologies group expects to encounter competition in the
area of patent acquisition and enforcement as the number of companies entering
this market is increasing. This includes competitors seeking to acquire the same
or similar patents and technologies that we may seek to acquire. Companies such
as British Technology Group, Rembrandt Management Group, and Intellectual
Ventures LLC are already in the business of acquiring the rights to patents for
the purpose of enforcement, and we expect more companies to enter the market. As
new technological advances occur, many of our patented technologies may become
obsolete before they are completely monetized. If we are unable to replace
obsolete technologies with more technologically advanced patented technologies,
then this obsolescence could have a negative effect on our ability to generate
future revenues.
o OUR PATENTED TECHNOLOGIES FACE UNCERTAIN MARKET VALUE.
Our Acacia Technologies group has acquired patents and technologies
that are at early stages of adoption in the commercial and consumer markets.
Demand for some of these technologies is untested and is subject to fluctuation
based upon the rate at which our licensees will adopt our patents and
technologies in their products and services. See the related risk factor
beginning on page 11 of this prospectus.
o AS PATENT ENFORCEMENT LITIGATION BECOMES MORE PREVALENT, IT
MAY BECOME MORE DIFFICULT FOR US TO VOLUNTARILY LICENSE OUR
PATENTS.
We believe that the more prevalent patent enforcement actions become,
the more difficult it will be for us to voluntarily license our patents. As a
result, we may need to increase the number of our patent enforcement actions to
cause infringing companies to license the patent or pay damages for lost
royalties. This may increase the risks associated with an investment in our
company.
o THE FOREGOING OUTSIDE INFLUENCES MAY AFFECT OTHER RISK FACTORS
DESCRIBED IN THIS PROSPECTUS
Any one of the foregoing outside influences may cause our company to
need additional financing to meet the challenges presented or to compensate for
a loss in revenue, and we may not be able to obtain the needed financing. See
the heading "If we, or our subsidiaries, encounter unforeseen difficulties and
cannot obtain additional funding on favorable terms, our business may suffer"
beginning on page 5 of this prospectus.
THE ACACIA TECHNOLOGIES GROUP HAS INCURRED LOSSES IN THE PAST AND EXPECTS TO
INCUR ADDITIONAL LOSSES IN THE FUTURE.
The Acacia Technologies group has sustained substantial losses in the
past. We expect the Acacia Technologies group to incur significant legal,
marketing, general and administrative expenses. As a result, we expect the
Acacia Technologies group to incur losses for the foreseeable future.
ALTHOUGH WE RECOGNIZED SIGNIFICANT REVENUE FROM THE V-CHIP TECHNOLOGY PATENT
HELD BY THE ACACIA TECHNOLOGIES GROUP, THIS PATENT EXPIRED IN JULY 2003, AND IF
THE GROUP DOES NOT DEVELOP OTHER RECURRING SOURCES OF REVENUE, ITS FINANCIAL
CONDITION WILL BE ADVERSELY IMPACTED.
The Acacia Technologies group, and Acacia Research Corporation as a
whole, recognized $27.5 million in revenues from licensing the V-chip patent to
television manufacturers, including $1.5 million in previously deferred revenue
during the year ended December 31, 2004. The Acacia Technologies group's patent
on the V-chip technology expired in July 2003, and we do not expect to recognize
further revenue from this patent.
In 2003, the Acacia Technologies group began to commercially license
its DMT technology recognizing approximately $3.5 million in DMT license fee
revenues to date, and intends to acquire and license additional intellectual
property. During the year ended December 31, 2004, we recognized $2.8 million in
revenue from our Digital Media Transmission patents. Pursuant to assignment
9
agreements related to the purchase of Acacia Media Technologies, the former
patent portfolio owners are entitled to 15% of future net revenues, as defined
by each agreement, generated by the digital media transmission patents.
In July 2004, the Acacia Technologies group acquired U.S. Patent No.
6,226,677 from LodgeNet Entertainment Corporation, which covers technology and
methods for redirecting users to a login page when accessing the Internet, and
launched its licensing and enforcement program for this patent in the third
quarter of 2004. Acacia Global Acquisition Corporation's acquisition of the
assets of Global Patent Holdings, LLC in 2005, provides the Acacia Technologies
group with ownership of companies that control 27 patent portfolios, which
include 120 U.S. patents and certain foreign counterparts, and cover
technologies used in a wide variety of industries. The acquisitions expand and
diversify the Acacia Technologies group's revenue generating opportunities. The
Acacia Technologies group believes that its cash and cash equivalent balances,
including the proceeds from the February 2005 equity financing received
following the acquisition of the assets from Global Patent Holdings, anticipated
cash flow from operations and other external sources of available credit, will
be sufficient to meet its cash requirements through the next twelve months.
However, due to the nature of our licensing business and uncertainties regarding
the amount and timing of the receipt of license fees from potential infringers,
stemming primarily from uncertainties regarding the outcome of enforcement
actions, rates of adoption of our patented technologies, the growth rates of our
existing licensees and other factors, we cannot currently predict the amount and
timing of the receipt of license fee revenues with a sufficient degree of
precision.
THE ACACIA TECHNOLOGIES GROUP MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF
FLUCTUATIONS IN ITS QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE THE PRICE OF
AR-ACACIA TECHNOLOGIES STOCK TO DECLINE.
The Acacia Technologies group's revenues and operating results have
fluctuated in the past and may continue to fluctuate significantly from quarter
to quarter in the future. It is possible that in future periods the Acacia
Technologies group's revenues could fall below the expectations of securities
analysts or investors, which could cause the market price of our AR-Acacia
Technologies stock to decline. The following are among the factors that could
cause the Acacia Technologies group's operating results to fluctuate
significantly from period to period:
o the performance of our third-party licensees;
o costs related to acquisitions, alliances, licenses and other
efforts to expand our operations;
o the timing of payments under the terms of any customer or
license agreements into which the Acacia Technologies group
may enter; and
o expenses related to, and the results of, patent filings and
other enforcement proceedings relating to intellectual
property rights, as more fully described on page 8.
THE ACACIA TECHNOLOGIES GROUP'S REVENUES WILL BE UNPREDICTABLE, AND THIS MAY
HARM ITS FINANCIAL CONDITION.
The amount and timing of revenues that the Acacia Technologies group
may realize from its business will be unpredictable because:
o whether the Acacia Technologies group generates revenues
depends, in part, on the success of its licensees;
o its cycle of obtaining licensees may be lengthy; and
o it cannot be sure as to the timing of receipt of payment.
As a result, the Acacia Technologies group's revenues may vary
significantly from quarter to quarter, which could make its business difficult
to manage and cause its quarterly results to be below market expectations. If
this happens, the price of our AR-Acacia Technologies stock may decline
significantly.
10
TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY
DEPRESS THE PRICE OF OUR AR-ACACIA TECHNOLOGIES STOCK.
The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies have been highly
volatile. We believe that various factors may cause the market price of our
AR-Acacia Technologies stock to fluctuate, perhaps substantially, including,
among others, the following:
o announcements of developments in our patent enforcement
actions
o developments or disputes concerning our patents;
o our or our competitors' technological innovations;
o developments in relationships with licensees;
o variations in our quarterly operating results;
o our failure to meet or exceed securities analysts'
expectations of our financial results; or
o a change in financial estimates or securities analysts'
recommendations;
o changes in management's or securities analysts' estimates of
our financial performance;
o changes in market valuations of similar companies;
o announcements by us or our competitors of significant
contracts, acquisitions, strategic partnerships, joint
ventures, capital commitments, new technologies, or patents;
and
o failure to complete significant transactions.
For example, the Nasdaq Computer Technology Index had a range of
$767.48 - $979.56 during the 52-weeks ended March 10, 2005. Over the same
period, our AR-Acacia Technologies stock fluctuated within a range of $2.77 -
$7.35. We believe fluctuations in our stock price during this period could have
been caused by court rulings in our patent enforcement actions. Court rulings in
patent enforcement actions are often difficult to understand, even when
favorable or neutral to the value of our patents, and we believe that investors
in the market may overreact, causing fluctuations in our stock prices that may
not accurately reflect the impact of court rulings on our business operations
and assets.
In the past, companies that have experienced volatility in the market
price of their stock have been the objects of securities class action
litigation. If our AR-Acacia Technologies stock was the object of securities
class action litigation, it could result in substantial costs and a diversion of
management's attention and resources, which could materially harm the business
and financial results of the Acacia Technologies group.
THE MARKETS SERVED BY THE ACACIA TECHNOLOGIES GROUP ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGE, AND IF THE ACACIA TECHNOLOGIES GROUP IS UNABLE TO DEVELOP
AND ACQUIRE NEW TECHNOLOGIES AND PATENTS, ITS REVENUES COULD STOP GROWING OR
COULD DECLINE.
The markets served by the licensees of Acacia Technologies group
frequently undergo transitions in which products rapidly incorporate new
features and performance standards on an industry-wide basis. Products for
communications applications, high-speed computing applications, as well as other
applications covered by the Acacia Technologies group's intellectual property,
are based on continually evolving industry standards. The Acacia Technologies
group's ability to compete in the future will, however, depend on its ability to
identify and ensure compliance with evolving industry standards. This will
require our continued efforts and success of acquiring new patent portfolios
with licensing and enforcement opportunities. However, we expect to have
sufficient liquidity and capital resources for the foreseeable future in order
11
to maintain the level of acquisitions we believe we need to keep pace with these
technological advances. However, outside influences may cause the need for
greater liquidity and capital resources than expected, as described under the
caption "Because our business operations are subject to many uncontrollable
outside influences, we may not succeed" beginning on page 8 of this prospectus.
THE SUCCESS OF OUR ACACIA TECHNOLOGIES GROUP DEPENDS IN PART UPON OUR ABILITY TO
RETAIN THE BEST LEGAL COUNSEL TO REPRESENT US IN PATENT ENFORCEMENT LITIGATION.
In addition, the success of the Acacia Technologies group depends upon
our ability to retain the best legal counsel to prosecute patent infringement
litigation. As our patent enforcement actions increase, it will become more
difficult to find the best legal counsel to handle all of our cases because many
of the best law firms may have a conflict of interest that prevents its
representation of our company.
RISKS RELATING TO THE COMBIMATRIX GROUP
The risk factors beginning on this page discuss risks relating to the CombiMatrix group. Because each holder of AR-Acacia TechnologiesAR- CombiMatrix stock is also a holder of the common stock of one company, Acacia Research Corporation, the risks associated with the CombiMatrixAcacia Technologies group could affect our AR-Acacia
TechnologiesAR-CombiMatrix stock. As such, we also urge you to read carefully the following section carefully.
BECAUSE OUR BUSINESS OPERATIONS ARE SUBJECT TO MANY UNCONTROLLABLE OUTSIDE
INFLUENCES, WE MAY NOT SUCCEED.
“Risks Relating to the Acacia Technologies Group” below.
Because our CombiMatrix group business operations are subject to many uncontrollable outside influences, it may not succeed.
Our CombiMatrix group's business operations are subject to numerous risks from outside influences, including the following:
o TECHNOLOGICAL ADVANCES MAY MAKE OUR COMBIMATRIX GROUP
SEMICONDUCTOR BASED ARRAY TECHNOLOGY OBSOLETE OR LESS
COMPETITIVE, AND AS A RESULT, OUR REVENUE AND THE VALUE OF OUR
ASSETS COULD BECOME OBSOLETE OR LESS COMPETITIVE.
| · | Technological advances may make our CombiMatrix group semiconductor based array technology obsolete or less competitive, and as a result, our revenue and the value of our assets could become obsolete or less competitive. |
Our CombiMatrix group products and services are dependent upon our semiconductor based array technology. The semiconductor based array technology is an advancement in conventional arrays that are used for the same purpose. Current array technologies have revolutionized drug discovery and development, and we believe that our CombiMatrix group's array technology provides characteristics, including flexibility, superior cost metrics, and performance, which address certain needs of the life sciences market which are not addressed by conventional arrays and offers the latest in technological advances in this area. Our products and services are substantially dependent upon our ability to offer the latest in semiconductor based array technology in the SNP genotyping, gene expression profiling and proteomic markets. We believe technological advances of conventional arrays and semiconductor based arrays are currently being developed by our existing competition and potential new competitors in the market, including Affymetrix, Inc., Agilent Technologies, Inc., Applera Corporation, Becton, Dickinson and Company, Ciphergen Biosystems, Inc., Gene Logic Inc., Illumina, Inc., Johnson & Johnson, Nanogen, Inc., Orchid Biosciences, Inc., Applera
Corporation, Roche Diagnostics GmbH and Sequenom, Inc. We also expect to face additional competition from new market entrants and consolidation of our existing competitors. Many of the CombiMatrix group's competitors have existing strategic relationships with major pharmaceutical and biotechnology companies, greater commercial experience and substantially greater financial and personnel resources than we do. We expect new competitors to emerge and the intensity of competition to increase in the future. If these companies are able to offer technological advances to conventional arrays or semiconductor based arrays, our products may become less valuable or even obsolete. While we continue to invest resources in research and development to enhance the technology of our products and services, we cannot provide any assurance that our competitors or new competitors will not enter the market with the same or similar technological advances before we are able to do so.
o NEW ENVIRONMENTAL REGULATION MAY MATERIALLY INCREASE THE NET
LOSSES OF OUR COMBIMATRIX GROUP
| · | New environmental regulation may materially increase the net losses of our CombiMatrix group |
The CombiMatrix group's operations involve the use, transportation, storage and disposal of hazardous substances, and as a result it is subject to environmental and health and safety laws and regulations. Any changes in these laws and regulations could increase
CombiMatrix'sthe CombiMatrix group's compliance costs, and as a result, could materially increase the net losses of our CombiMatrix group.
12
o OUR TECHNOLOGIES FACE UNCERTAIN MARKET VALUE.
| · | Our technologies face uncertain market value |
Our CombiMatrix group includes the following technologies and products that were recently introduced into the market: CustomArray(TM)CustomArrayTM, DNA Microarray,
CustomArray(TM), 12K DNA expression array and related products, Design-on-Demand(TM)Design-on-DemandTM Arrays, and NanoArrayTM technology.NanoArrayTM technology and our Bench-Top DNA Microarray Synthesizer for CustomArrayTM. These technologies and products have not gained widespread market acceptance, and we cannot provide any assurance that the increase, if any, in market acceptance of these technologies and products will meet or exceed our expectations.
Further, our CombiMatrix group is currently developing the following technologies and products that have not yet been introduced into the market: (a) Bench-Top DNA Microarray Synthesizer for CustomArray(TM) formatted arrays, (b)
microarray technology for the detection of biological threat agents, (b) molecular diagnostics drug discovery and development using the CustomArray(TM)CustomArrayTM platform, and (c) nanotechnology-based chemical sensors to be usedadditional products for the detection of biological
agents in airresearch and water.development and diagnostics markets including higher density arrays. The level of market acceptance of these technologies and products will have a significant impact upon our results of operations, and we cannot provide any assurance that the increase, if any, in market acceptance of these technologies and products will meet or exceed our expectations.
o THE FOREGOING OUTSIDE INFLUENCES MAY AFFECT OTHER RISK FACTORS
DESCRIBED IN THIS PROSPECTUS
| · | The foregoing outside influences may affect other risk factors described in this Prospectus |
Any one of the foregoing outside influences may cause our company to need additional financing to meet the challenges presented or to compensate for a loss in revenue, and we may not be able to obtain the needed financing. See the heading "If“If we, or our subsidiaries, encounter unforeseen difficulties and cannot obtain additional funding on favorable terms, our business may suffer"
beginning on page 5 of this prospectus.suffer” below. Further, any one of the foregoing outside influences affecting the CombiMatrix group could make it less likely that our CombiMatrix group will be able to gain acceptance of its array technology by researchers in the pharmaceutical, biotechnology and academic communities. See the heading "If“If the CombiMatrix group's new and unproven technology is not used by researchers in the pharmaceutical, biotechnology and academic communities, its business will suffer" beginning on page 16suffer” below.
The CombiMatrix group has a history of this
prospectus.
THE COMBIMATRIX GROUP HAS A HISTORY OF LOSSES AND EXPECTS TO INCUR ADDITIONAL
LOSSES IN THE FUTURE.
losses and expects to incur additional losses in the future.
The CombiMatrix group has sustained substantial losses since its inception. The CombiMatrix group may never become profitable, or if it does, it may never be able to sustain profitability. We expect the CombiMatrix group to incur significant research and development, marketing, general and administrative expenses. As a result, we expect the CombiMatrix group to incur losses for the foreseeable future.
THE COMBIMATRIX GROUP MUST ENTER INTO NEW STRATEGIC PARTNERSHIPS TO GENERATE
REVENUE CONSISTENT WITH ITS OPERATING HISTORY AS A RESULT OF THE COMPLETION OF
THE RELATIONSHIP WITH ROCHE DIAGNOSTICS GmbH
The CombiMatrix group must enter into new strategic partnerships to generate revenue consistent with its operating history as a result of the completion of the relationship with Roche Diagnostics GmbH.
In March 2004, the CombiMatrix group completed all phases of its research and development agreement with
Roche.Roche Diagnostics GmbH (“Roche”). As a result of completing all of its obligations under this agreement and in accordance with the CombiMatrix group's revenue recognition policies for multiple-element arrangements, the CombiMatrix group recognized all previously deferred Roche related contract revenues totaling $17,302,000 during the first quarter of 2004. To date, the CombiMatrix group has relied primarily upon selling equity securities, as well as payments from strategic partners, to generate the funds needed to finance the implementation of the CombiMatrix group's business strategies. The CombiMatrix group has historically been
substantially dependent on its arrangements with Roche,
Diagnostics GmbH ("Roche"), and has relied upon payments by Roche and other partners for a majority of its
future revenues.working capital. The CombiMatrix group intends to enter into additional strategic partnerships to develop and commercialize future products. The CombiMatrix group is deploying unproven technologies and continues to develop its commercial products. There can be no assurance that the CombiMatrix group will be able to implement its future plans. Failure by management to achieve its plans would have a material adverse effect on the CombiMatrix group's and Acacia Research Corporation's ability to achieve its intended business objectives.
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THE COMBIMATRIX GROUP MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF
FLUCTUATIONS IN ITS QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE ITS STOCK
PRICE TO DECLINE.
The CombiMatrix group may fail to meet market expectations because of fluctuations in its quarterly operating results, which could cause its stock price to decline.
The CombiMatrix group's revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from quarter to quarter in the future. It is possible that in future periods the CombiMatrix group's revenues could fall below the expectations of securities analysts or investors, which could cause the market price of our AR-CombiMatrix stock to decline. The following are among the factors that could cause the CombiMatrix group's operating results to fluctuate significantly from period to period:
o its unpredictable revenue sources, as described below and in
our most recent annual report incorporated by reference on
page 32 below;
o the nature, pricing and timing of the CombiMatrix group's and
its competitors' products;
o changes in the CombiMatrix group's and its competitors'
research and development budgets;
o expenses related to, and the CombiMatrix group's ability to
comply with, governmental regulations of its products and
processes; and
o expenses related to, and the results of, patent filings and
other proceedings relating to intellectual property rights.
| · | its unpredictable revenue sources, as described below; |
| · | the nature, pricing and timing of the CombiMatrix group's and its competitors' products; |
| · | changes in the CombiMatrix group's and its competitors' research and development budgets; |
| · | expenses related to, and the CombiMatrix group's ability to comply with, governmental regulations of its products and processes; and |
| · | expenses related to, and the results of, patent filings and other proceedings relating to intellectual property rights. |
The CombiMatrix group anticipates significant fixed expenses due in part to its need to continue to invest in product development. It may be unable to adjust its expenditures if revenues in a particular period fail to meet its expectations, which would harm its operating results for that period. As a result of these fluctuations, the CombiMatrix group believes that period-to-period comparisons of the CombiMatrix group's financial results will not necessarily be meaningful, and you should not rely on these comparisons as an indication of its future performance.
THE COMBIMATRIX GROUP'S REVENUES WILL BE UNPREDICTABLE, AND THIS MAY HARM ITS
FINANCIAL CONDITION.
The CombiMatrix group's revenues will be unpredictable, and this may harm its financial condition.
The amount and timing of revenues that the CombiMatrix group may realize from its business will be unpredictable because:
o whether products are commercialized and generate revenues
depends, in part, on the efforts and timing of its potential
customers;
o its sales cycles may be lengthy; and
o it cannot be sure as to the timing of receipt of payment for
its products.
| · | whether products and services are commercialized and generate revenues depends, in part, on the efforts and timing of its potential customers; and |
| · | its sales cycles may be lengthy. |
As a result, the CombiMatrix group's revenues may vary significantly from quarter to quarter, which could make its business difficult to manage and cause its quarterly results to be below market expectations. If this happens, the price of the CombiMatrix group's common stock may decline significantly.
TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY
DEPRESS THE PRICE OF OUR AR-COMBIMATRIX STOCK.
Technology company stock prices are especially volatile, and this volatility may depress the price of our AR-CombiMatrix stock.
The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies, particularly biotechnology companies, has been highly volatile.
In addition, our stock has historically experienced greater price fluctuations than the biotechnology index of other Nasdaq listed stock. We believe that various factors may cause the market price of our AR-CombiMatrix stock to fluctuate, perhaps substantially, including, among others, announcements of:
o its or its competitors' technological innovations;
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o developments or disputes concerning patents or proprietary
rights;
o supply, manufacturing or distribution disruptions or other
similar problems;
o proposed laws regulating participants in the biotechnology
industry;
o developments in relationships with collaborative partners or
customers;
o its failure to meet or exceed securities analysts'
expectations of its financial results; or
o a change in financial estimates or securities analysts'
recommendations.
| · | its or its competitors' technological innovations; |
| · | developments or disputes concerning patents or proprietary rights; |
| · | supply, manufacturing or distribution disruptions or other similar problems; |
| · | proposed laws regulating participants in the biotechnology industry; |
| · | developments in relationships with collaborative partners or customers; |
| · | its failure to meet or exceed securities analysts' expectations of its financial results; or |
| · | a change in financial estimates or securities analysts' recommendations. |
In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If our AR-CombiMatrix stock was the object of securities class action litigation, it could result in substantial costs and a diversion of management's attention and resources, which could materially harm the business and financial results of the CombiMatrix group.
THE COMBIMATRIX GROUP IS DEPLOYING NEW AND UNPROVEN TECHNOLOGIES WHICH MAKES
EVALUATION OF ITS BUSINESS AND PROSPECTS DIFFICULT, AND IT MAY BE FORCED TO
CEASE OPERATIONS IF IT DOES NOT DEVELOP COMMERCIALLY SUCCESSFUL PRODUCTS.
The CombiMatrix group is deploying new and unproven technologies which makes evaluation of its business and prospects difficult, and it may be forced to cease operations if it does not develop commercially successful products.
The CombiMatrix group has not proven its ability to commercialize products on a large scale. In order to successfully commercialize products on a large scale, it will have to make significant investments, including investments in research and development and testing, to demonstrate their technical benefits and cost-effectiveness. Problems frequently encountered in connection with the commercialization of products using new and unproven technologies might limit its ability to develop and commercialize its products. For example, the CombiMatrix group's products may be found to be ineffective, unreliable or otherwise unsatisfactory to potential customers. The CombiMatrix group may experience unforeseen technical complications in the processes it uses to develop, manufacture, customize or receive orders for its products. These complications could materially delay or limit the use of products the CombiMatrix group attempts to commercialize, substantially increase the anticipated cost of its products or prevent it from implementing its processes at appropriate quality and scale levels, thereby causing its business to suffer.
THE COMBIMATRIX GROUP MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF
ADDITIONAL CAPITAL IS NOT AVAILABLE ON ACCEPTABLE TERMS, THE COMBIMATRIX GROUP
MAY HAVE TO CURTAIL OR CEASE OPERATIONS.
The CombiMatrixgroup may need to raise additional capital in the future, and if additional capital is not available on acceptable terms, the CombiMatrix group may have to curtail or cease operations.
The CombiMatrix group's future capital requirements will be substantial and will depend on many factors including how quickly it commercializes its products, the progress and scope of its collaborative and independent research and development projects, the filing, prosecution, enforcement and defense of patent claims and the need to obtain regulatory approval for certain products in the United States or elsewhere. Changes may occur that would cause the CombiMatrix group's available capital resources to be consumed significantly sooner than it expects.
The CombiMatrix group may be unable to raise sufficient additional capital on favorable terms or at all. If it fails to do so, it may have to curtail or cease operations or enter into agreements requiring it to relinquish rights to certain technologies, products or markets because it will not have the capital necessary to exploit them.
IF THE COMBIMATRIX GROUP DOES NOT ENTER INTO SUCCESSFUL PARTNERSHIPS AND
COLLABORATIONS WITH OTHER COMPANIES, IT MAY NOT BE ABLE TO FULLY DEVELOP ITS
TECHNOLOGIES OR PRODUCTS, AND ITS BUSINESS WOULD BE HARMED.
If the CombiMatrix group does not enter into successful partnerships and collaborations with other companies, it may not be able to fully develop its technologies or products, and its business would be harmed.
Since the CombiMatrix group does not possess all of the resources necessary to develop and commercialize products that may result from its technologies on a mass scale, it will need either to grow its sales, marketing and support group or make appropriate arrangements with strategic partners to market, sell and support its products. The CombiMatrix group believes that it will have to enter into additional strategic partnerships to develop and commercialize future products. If it does not enter into adequate agreements, or if its existing arrangements or future agreements are not successful, its ability to develop and commercialize products will be impacted negatively, and its revenues will be adversely affected.
15
Historically, the CombiMatrix group was substantially dependent on its arrangement with Roche. The CombiMatrix group relied on payments by Roche to fund the majority of its resources engaged in fulfilling its contractual obligations to Roche. Roche's primary service to the CombiMatrix group is to distribute its technology platform. If the CombiMatrix group were to lose its relationship with Roche, the CombiMatrix group would continue to distribute its technology platform itself or be required to establish a distribution agreement with other partners. This could prove difficult, time-consuming and expensive, and the CombiMatrix group may not be successful in achieving this objective.
THE COMBIMATRIX GROUP HAS LIMITED EXPERIENCE COMMERCIALLY MANUFACTURING,
MARKETING OR SELLING ANY OF ITS POTENTIAL PRODUCTS, AND UNLESS IT DEVELOPS THESE
CAPABILITIES, IT MAY NOT BE SUCCESSFUL.
The CombiMatrix group has limited experience commercially manufacturing, marketing or selling any of its potential products, and unless it develops these capabilities, it may not be successful.
Even if the CombiMatrix group is able to develop its products for commercial release on a large-scale, it has limited experience in manufacturing its products in the volumes that will be necessary for it to achieve commercial sales and in marketing or selling its products to potential customers. We cannot assure you that the CombiMatrix group will be able to commercially produce its products on a timely basis, in sufficient quantities or on commercially reasonable terms.
THE COMBIMATRIX GROUP FACES INTENSE COMPETITION AND WE CANNOT ASSURE YOU THAT IT
WILL BE SUCCESSFUL.
The CombiMatrix group faces intense competition and we cannot assure you that it will be successful.
The CombiMatrix group expects to compete with companies that design, manufacture and market instruments for analysis of genetic variation and function and other applications using established sequential and parallel testing technologies. The CombiMatrix group is also aware of other biotechnology companies that have or are developing testing technologies for the SNP genotyping, gene expression profiling and proteomic markets. The CombiMatrix group anticipates that it will face increased competition in the future as new companies enter the market with new technologies and its competitors improve their current products.
The markets for the CombiMatrix group's products are characterized by rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and new product introductions. One or more of the CombiMatrix group's competitors may offer technology superior to those of the CombiMatrix group and render its technology obsolete or uneconomical. Many of its competitors have greater financial and personnel resources and more experience in marketing, sales and research and development than it has. Some of its competitors currently offer arrays with greater density than it does and have rights to intellectual property, such as genomic information or proprietary technology, which provides them with a competitive advantage. If the CombiMatrix group were not able to compete successfully, its business and financial condition would be materially harmed.
IF THE COMBIMATRIX GROUP'S NEW AND UNPROVEN TECHNOLOGY IS NOT USED BY
RESEARCHERS IN THE PHARMACEUTICAL, BIOTECHNOLOGY AND ACADEMIC COMMUNITIES, ITS
BUSINESS WILL SUFFER.
If the CombiMatrix group's new and unproven technology is not used by researchers in the pharmaceutical, biotechnology and academic communities, its business will suffer.
The CombiMatrix group's products may not gain market acceptance. In that event, it is unlikely that its business will succeed. Biotechnology and pharmaceutical companies and academic research centers have historically analyzed genetic variation and function using a variety of technologies, and many of them have made significant capital investments in existing technologies. Compared to existing technologies, the CombiMatrix group's technologies are new and unproven. In order to be successful, its products must meet the commercial requirements of the biotechnology, pharmaceutical and academic communities as tools for the large-scale analysis of genetic variation and function. Market acceptance will depend on many factors, including:
o
| · | the development of a market for its tools for the analysis of genetic variation and function, the study of proteins and other purposes; |
| · | the benefits and cost-effectiveness of its products relative to others available in the market; |
| · | its ability to manufacture products in sufficient quantities with acceptable quality and reliability and at an acceptable cost; |
| · | its ability to develop and market additional products and enhancements to existing products that are responsive to the changing needs of its customers; |
| · | the willingness and ability of customers to adopt new technologies requiring capital investments or the reluctance of customers to change technologies in which they have made a significant investment; and |
| · | the willingness of customers to transmit test data and permit the CombiMatrix group to transmit test results over the Internet, which will be a necessary component of its product and services packages unless customers purchase or license its equipment for use in their own facilities. |
If the market for its tools for the analysis of genetic variation and function, the study of proteins and
other purposes;
o the benefits and cost-effectiveness of its products relative
to othersgenomic information does not develop or if genomic information is not available in the market;
16
o its ability to manufacture products in sufficient quantities
with acceptable quality and reliability and at an acceptable
cost;
o its ability to develop and market additional products and
enhancements to existing products that are responsive to the changing needs ofCombiMatrix group's potential customers, its customers;
o the willingness and ability of customers to adopt new
technologies requiring capital investments or the reluctance
of customers to change technologies in which they have made a
significant investment; and
o the willingness of customers to transmit test data and permit
the CombiMatrix group to transmit test results over the
Internet, whichbusiness will be a necessary component of its product
and services packages unless customers purchase or license its
equipment for use in their own facilities.
IF THE MARKET FOR ANALYSIS OF GENOMIC INFORMATION DOES NOT DEVELOP OR IF GENOMIC
INFORMATION IS NOT AVAILABLE TO THE COMBIMATRIX GROUP'S POTENTIAL CUSTOMERS, ITS
BUSINESS WILL NOT SUCCEED.
not succeed. The CombiMatrix group is designing its technology primarily for applications in the biotechnology, pharmaceutical and academic communities. The usefulness of the CombiMatrix group's technology depends in part upon the availability of genomic data. The CombiMatrix group is initially focusing on markets for analysis of genetic variation and function, namely gene expression profiling. These markets are new and emerging, and they may not develop as the CombiMatrix group anticipates, or at all. Also, researchers may not seek or be able to convert raw genomic data into medically valuable information through the analysis of genetic variation and function. If genomic data is not available for use by the CombiMatrix group's customers or if its target markets do not emerge in a timely manner, or at all, demand for its products will not develop as it expects, and it may never become profitable.
THE COMBIMATRIX GROUP'S FUTURE SUCCESS DEPENDS ON THE CONTINUED SERVICE OF ITS
ENGINEERING, TECHNICAL AND KEY MANAGEMENT PERSONNEL AND ITS ABILITY TO IDENTIFY,
HIRE AND RETAIN ADDITIONAL ENGINEERING, TECHNICAL AND KEY MANAGEMENT PERSONNEL.
The CombiMatrix group's future success depends on the continued service of its engineering, technical and key management personnel and its ability to identify, hire and retain additional engineering, technical and key management personnel.
There is intense competition for qualified personnel in the CombiMatrix group's industry, particularly for engineers and senior level management. Loss of the services of, or failure to recruit, engineers or other technical and key management personnel could be significantly detrimental to the group and could adversely affect its business and operating results. The CombiMatrix group may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of its products and business or to replace engineers or other qualified personnel who may leave the group in the future. The CombiMatrix group's anticipated growth is expected to place increased demands on its resources and likely will require the addition of new management personnel.
THE EXPANSION OF THE COMBIMATRIX GROUP'S PRODUCT LINES MAY SUBJECT IT TO
REGULATION BY THE UNITED STATES FOOD AND DRUG ADMINISTRATION AND FOREIGN
REGULATORY AUTHORITIES, WHICH COULD PREVENT OR DELAY ITS INTRODUCTION OF NEW
PRODUCTS.
The expansion of the CombiMatrix group's product lines may subject it to regulation by the united states food and drug administration and foreign regulatory authorities, which could prevent or delay its introduction of new products.
If the CombiMatrix group manufactures, markets or sells any products for any regulated clinical or diagnostic applications, those products will be subject to extensive governmental regulation as medical devices in the United States by the FDA and in other countries by corresponding foreign regulatory authorities. The process of obtaining and maintaining required regulatory clearances and approvals is lengthy, expensive and uncertain. Products that CombiMatrix Corporation manufactures, markets or sells for research purposes only are not subject to governmental regulations as medical devices or as analyte specific reagents to aid in disease diagnosis. We believe that the CombiMatrix group's success will depend upon commercial sales of improved versions of products, certain of which cannot be marketed in the United States and other regulated markets unless and until the CombiMatrix group obtains clearance or approval from the FDA and its foreign counterparts, as the case may be. Delays or failures in receiving these approvals may limit our ability to benefit from new CombiMatrix group products.
17
AS THE COMBIMATRIX GROUP'S OPERATIONS EXPAND, ITS COSTS TO COMPLY WITH
ENVIRONMENTAL LAWS AND REGULATIONS WILL INCREASE, AND FAILURE TO COMPLY WITH
THESE LAWS AND REGULATIONS COULD HARM ITS FINANCIAL RESULTS.
As the CombiMatrix group's operations expand, its costs to comply with environmental laws and regulations will increase, and failure to comply with these laws and regulations could harm its financial results.
The CombiMatrix group's operations involve the use, transportation, storage and disposal of hazardous substances, and as a result it is subject to environmental and health and safety laws and regulations. As the CombiMatrix group expands its operations, its use of hazardous substances will increase and lead to additional and more stringent requirements. The cost to comply with these and any future environmental and health and safety regulations could be substantial. In addition, the CombiMatrix group's failure to comply with laws and regulations, and any releases of hazardous substances into the environment or at its disposal sites, could expose the CombiMatrix group to substantial liability in the form of fines, penalties, remediation costs and other damages, or could lead to a curtailment or shut down of its operations. These types of events, if they occur, would adversely impact the group's financial results.
THE COMBIMATRIX GROUP'S BUSINESS DEPENDS ON ISSUED AND PENDING PATENTS, AND THE
LOSS OF ANY PATENTS OR THE GROUP'S FAILURE TO SECURE THE ISSUANCE OF PATENTS
COVERING ELEMENTS OF ITS BUSINESS PROCESSES WOULD MATERIALLY HARM ITS BUSINESS
AND FINANCIAL CONDITION.
The CombiMatrix group's business depends on issued and pending patents, and the loss of any patents or the group's failure to secure the issuance of patents covering elements of its business processes would materially harm its business and financial condition.
The CombiMatrix group's success depends on its ability to protect and exploit its intellectual property. The CombiMatrix group currently has four patents issued in the United States, fourthree patents issued in Europe and 5980 patent applications pending in the United States, Europe and elsewhere. The patents covering the CombiMatrix group's core technology begin to expire January 5, 2018.
The patent application process before the United States Patent and Trademark Office and other similar agencies in other countries is initially confidential in nature. Patents that are filed outside the United States, however, are published approximately eighteen months after filing. The CombiMatrix group cannot determine in a timely manner whether patent applications covering technology that competes with its technology have been filed in the United States or other foreign countries or which, if any, will ultimately issue or be granted as enforceable patents. Some of the CombiMatrix group's patent applications may claim compositions, methods or uses that may also be claimed in patent applications filed by others. In some or all of these applications, a determination of priority of inventorship may need to be decided in a proceeding before the United States Patent and Trademark Office or a foreign regulatory body or a court. If the CombiMatrix group is unsuccessful in these proceedings, it could be blocked from further developing, commercializing or selling products. Regardless of the ultimate outcome, this process is time-consuming and expensive.
ANY INABILITY TO ADEQUATELY PROTECT THE COMBIMATRIX GROUP'S PROPRIETARY
TECHNOLOGIES COULD MATERIALLY HARM THE COMBIMATRIX GROUP'S COMPETITIVE POSITION
AND FINANCIAL RESULTS.
Any inability to adequately protect the CombiMatrix group's proprietary technologies could materially harm the CombiMatrix group's competitive position and financial results.
If the CombiMatrix group does not protect its intellectual property adequately, competitors may be able to use its technologies and erode any competitive advantage that it may have. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting their proprietary rights abroad. These problems can be caused by the absence of rules and methods for defending intellectual property rights.
The patent positions of companies developing tools for the biotechnology, pharmaceutical and academic communities, including the CombiMatrix group's patent position, generally are uncertain and involve complex legal and factual questions. The CombiMatrix group will be able to protect its proprietary rights from unauthorized use by third parties only to the extent that its proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. The CombiMatrix group's existing patents and any future issued or granted patents it obtains may not be sufficiently broad in scope to prevent others from practicing its technologies or from developing competing products. There also is a risk that others may independently develop similar or alternative technologies or designs around the CombiMatrix group's patented technologies. In addition, others may oppose or invalidate its patents, or its patents may fail to provide it with any competitive advantage. Enforcing the CombiMatrix group's intellectual property rights may be difficult, costly and time-consuming and ultimately may not be successful.
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The CombiMatrix group also relies upon trade secret protection for its confidential and proprietary information. While it has taken security measures to protect its proprietary information, these measures may not provide adequate protection for its trade secrets or other proprietary information. The CombiMatrix group seeks to protect its proprietary information by entering into confidentiality and invention disclosure and transfer agreements with employees, collaborators and consultants. Nevertheless, employees, collaborators or consultants may still disclose its proprietary information, and the CombiMatrix group may not be able to meaningfully protect its trade secrets. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to its trade secrets.
ANY LITIGATION TO PROTECT THE COMBIMATRIX GROUP'S INTELLECTUAL PROPERTY, OR ANY
THIRD-PARTY CLAIMS OF INFRINGEMENT, COULD DIVERT SUBSTANTIAL TIME AND MONEY FROM
THE COMBIMATRIX GROUP'S BUSINESS AND COULD SHUT DOWN SOME OF ITS OPERATIONS.
Any litigation to protect the CombiMatrix group's intellectual property, or any third-party claims of infringement, could divert substantial time and money from the CombiMatrix group's business and could shut down some of its operations.
The CombiMatrix group's commercial success depends in part on its non-infringement of the patents or proprietary rights of third parties. Many companies developing tools for the biotechnology and pharmaceutical industries use litigation aggressively as a strategy to protect and expand the scope of their intellectual property rights. Accordingly, third parties may assert that the CombiMatrix group is employing their proprietary technology without authorization. In addition, third parties may claim that use of the CombiMatrix group's technologies infringes their current or future patents. The CombiMatrix group could incur substantial costs and the attention of its management and technical personnel could be diverted while defending ourselves against any of these claims. The CombiMatrix group may incur the same liabilities in enforcing its patents against others. The CombiMatrix group has not made any provision in its financial plans for potential intellectual property related litigation, and it may not be able to pursue litigation as aggressively as competitors with substantially greater financial resources.
If parties making infringement claims against the CombiMatrix group are successful, they may be able to obtain injunctive or other equitable relief, which effectively could block the CombiMatrix group's ability to further develop, commercialize and sell products, and could result in the award of substantial damages against it. If the CombiMatrix group is unsuccessful in protecting and expanding the scope of its intellectual property rights, its competitors may be able to develop, commercialize and sell products that compete with it using similar technologies or obtain patents that could effectively block its ability to further develop, commercialize and sell its products. In the event of a successful claim of infringement against the CombiMatrix group, we may be required to pay substantial damages and either discontinue those aspects of its business involving the technology upon which it infringed or obtain one or more licenses from third parties. While the CombiMatrix group may license additional technology in the future, it may not be able to obtain these licenses at a reasonable cost, or at all. In that event, it could encounter delays in product introductions while it attempts to develop alternative methods or products, which may not be successful. Defense of any lawsuit or failure to obtain any of these licenses could prevent it from commercializing available products.
If we encounter unforeseen difficulties and cannot obtain additional funding on favorable terms, our business may suffer.
Our CombiMatrix group’s cash and cash equivalents along with short-term investments totaled $20.2 million at December 31, 2005.
To date, the CombiMatrix group has relied primarily upon selling equity securities, as well as payments from strategic partners, to generate the funds needed to finance the implementation of its business strategies. We cannot assure you that the CombiMatrix group will not encounter unforeseen difficulties, including the outside influences identified above, that may deplete its capital resources more rapidly than anticipated. As a result, the CombiMatrix group subsidiary companies may be required to obtain additional financing through bank borrowings, debt or equity financings or otherwise, which would require us to make additional investments or face a dilution of our equity interests. Any efforts to seek additional funds could be made through equity, debt or other external financings. Nevertheless, we cannot assure that additional funding will be available on favorable terms, if at all. If the CombiMatrix group fails to obtain additional funding when needed for its subsidiary companies, the CombiMatrix group may not be able to execute its business plans and its business may suffer.
Because we have a limited operating history, we cannot assure that our operations will be profitable.
The CombiMatrix group commenced operations in 1996, and accordingly, have a limited operating history. In addition, the CombiMatrix group is still in the early stages of development and/or operations of much of its business and have a limited operating history. You should consider the CombiMatrix group’s prospects in light of the risks, expenses and difficulties frequently encountered by companies with such limited operating histories. Since the CombiMatrix group has a limited operating history, we cannot assure you that its operations will be profitable or that it will generate sufficient revenues to meet its expenditures and support its activities.
The CombiMatrix group has sustained substantial losses since its inception. If the CombiMatrix group continues to incur operating losses in future periods, it may not have enough money to expand its business and its subsidiary companies’ businesses in the future.
Failure to effectively manage our growth could place strains on our managerial, operational and financial resources and could adversely affect our business and operating results.
Our CombiMatrix group’s growth has placed, and is expected to continue to place, a strain on its managerial, operational and financial resources. Further, as its subsidiary companies’ businesses grow, the CombiMatrix group will be required to manage multiple relationships. Any further growth by the CombiMatrix group or its subsidiary companies or an increase in the number of our strategic relationships will increase this strain on the CombiMatrix group’s managerial, operational and financial resources. This strain may inhibit the CombiMatrix group’s ability to achieve the rapid execution necessary to successfully implement its business plan.
Our future success depends on our ability to expand our organization to match the growth of our subsidiaries.
As the CombiMatrix group subsidiaries grow, the administrative demands upon its management will grow, and its success will depend upon its ability to meet those demands. These demands include increased accounting, management, legal services, staff support for the CombiMatrix group’s board of directors, and general office services. The CombiMatrix group may need to hire additional qualified personnel to meet these demands, the cost and quality of which is dependent in part upon market factors outside of the CombiMatrix group’s control. Further, the CombiMatrix group will need to effectively manage the training and growth of its staff to maintain an efficient and effective workforce, and its failure to do so could adversely affect its business and operating results.
RISKS RELATING TO THE ACACIA TECHNOLOGIES GROUP
The risk factors beginning on this page discuss risks relating to the Acacia Technologies group. Because each holder of AR- Acacia Technologies stock is also a holder of the common stock of one company, Acacia Research Corporation, the risks associated with the CombiMatrix group could affect our AR-Acacia Technologies stock. As such, we urge you to read carefully the section “Risks Relating to the CombiMatrix Group” above.
Because our business operations are subject to many uncontrollable outside influences, we may not succeed.
Our Acacia Technologies group’s business operations are subject to numerous risks from outside influences, including the following:
| · | New legislation, regulations or rules related to obtaining patents or enforcing patents could significantly increase Acacia Technologies group’s operating costs and decrease its revenue. |
Our Acacia Technology group acquires patents with enforcement opportunities and is spending a significant amount of resources to enforce those patents. If new legislation, regulations or rules are implemented either by Congress, the United States Patent and Trademark Office, or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our expenses and revenue. For example, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions. While we are not aware that any such changes are likely to occur in the foreseeable future, we cannot assure you that such changes will not occur.
| · | Trial judges and juries often find it difficult to understand complex patent enforcement litigation, and as a result, we may need to appeal adverse decisions by lower courts in order to successfully enforce our patents. |
It is difficult to predict the outcome of patent enforcement litigation at the trial level. It is often difficult for juries and trial judges to understand complex, patented technologies, and as a result, there is a higher rate of successful appeals in patent enforcement litigation than more standard business litigation. Such appeals are expensive and time consuming, resulting in increased costs and delayed revenue. Although we diligently pursue enforcement litigation, we cannot predict with significant reliability the decisions made by juries and trial courts.
| · | More patent applications are filed each year resulting in longer delays in getting patents issued by the United States Patent and Trademark Office. |
Our Acacia Technology group holds and continues to acquire pending patents. We have identified a trend of increasing patent applications each year, which we believe is resulting in longer delays in obtaining approval of pending patent applications. The delays could cause delays in recognizing revenue from these patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market. See the subheading “Competition is intense in the industries in which our subsidiaries do business and as a result, we may not be able to grow or maintain our market share for our technologies and patents,” below.
| · | Federal courts are becoming more crowded, and as a result, patent enforcement litigation is taking longer. |
Our patent enforcement actions are almost exclusively prosecuted in federal court. Federal trial courts that hear our patent enforcement actions also hear criminal cases. Criminal cases always take priority over our actions. As a result, it is difficult to predict the length of time it will take to complete an enforcement action. Moreover, we believe there is a trend in increasing numbers of civil lawsuits and criminal proceedings before federal judges, and as a result, we believe that the risk of delays in our patent enforcement actions will have a greater affect on our business in the future unless this trend changes.
| · | Any Reductions in the funding of the United States Patent and Trademark Office could have an adverse impact on the cost of processing pending patent applications and the value of those pending patent applications. |
The assets of Acacia Technologies group consists of patent portfolios, including pending patent applications before the U.S. Patent and Trademark Office (USPTO). The value of our patent portfolios is dependent upon the issuance of patents in a timely manner, and any reductions in the funding of the USPTO could negatively impact the value of our assets. Further, reductions in funding from Congress could result in higher patent application filing and maintenance fees charged by the USPTO, causing an unexpected increase in our expenses.
| · | Competition is intense in the industries in which our subsidiaries do business and as a result, we may not be able to grow or maintain our market share for our technologies and patents. |
Our Acacia Technologies group expects to encounter competition in the area of patent acquisition and enforcement as the number of companies entering this market is increasing. This includes competitors seeking to acquire the same or similar patents and technologies that we may seek to acquire. Companies such as British Technology Group, Rembrandt Management Group, and Intellectual Ventures LLC are already in the business of acquiring the rights to patents for the purpose of enforcement, and we expect more companies to enter the market. As new technological advances occur, many of our patented technologies may become obsolete before they are completely monetized. If we are unable to replace obsolete technologies with more technologically advanced patented technologies, then this obsolescence could have a negative effect on our ability to generate future revenues.
| · | Our patented technologies face uncertain market value. |
Our Acacia Technologies group has acquired patents and technologies that are at early stages of adoption in the commercial and consumer markets. Demand for some of these technologies is untested and is subject to fluctuation based upon the rate at which our licensees will adopt our patents and technologies in their products and services. See the related risk factor below.
| · | As patent enforcement litigation becomes more prevalent, it may become more difficult for us to voluntarily license our patents. |
We believe that the more prevalent patent enforcement actions become, the more difficult it will be for us to voluntarily license our patents. As a result, we may need to increase the number of our patent enforcement actions to cause infringing companies to license the patent or pay damages for lost royalties. This may increase the risks associated with an investment in our company.
| · | The foregoing outside influences may affect other risk factors described in this prospectus. |
Any one of the foregoing outside influences may cause our company to need additional financing to meet the challenges presented or to compensate for a loss in revenue, and we may not be able to obtain the needed financing. See the heading “If we, or our subsidiaries, encounter unforeseen difficulties and cannot obtain additional funding on favorable terms, our business may suffer” above.
The Acacia Technologies group has incurred losses in the past and expects to incur additional losses in the future.
The Acacia Technologies group has sustained substantial losses in the past. We expect the Acacia Technologies group to incur significant legal, marketing, general and administrative expenses. As a result, we expect the Acacia Technologies group to incur losses for the foreseeable future.
The Acacia Technologies group may fail to meet market expectations because of fluctuations in its quarterly operating results, which could cause the price of AR-Acacia Technologies stock to decline.
The Acacia Technologies group’s revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from quarter to quarter in the future. It is possible that in future periods the Acacia Technologies group’s revenues could fall below the expectations of securities analysts or investors, which could cause the market price of our AR-Acacia Technologies stock to decline. The following are among the factors that could cause the Acacia Technologies group’s operating results to fluctuate significantly from period to period:
| · | the performance of our third-party licensees; |
| · | costs related to acquisitions, alliances, licenses and other efforts to expand our operations; |
| · | the timing of payments under the terms of any customer or license agreements into which the Acacia Technologies group may enter; and |
| · | expenses related to, and the results of, patent filings and other enforcement proceedings relating to intellectual property rights, as more fully described in this section. |
The Acacia Technologies group’s revenues will be unpredictable, and this may harm its financial condition.
Acacia Global Acquisition Corporation's acquisition of the assets of Global Patent Holdings, LLC in 2005, provided the Acacia Technologies group with ownership of companies that control 27 patent portfolios, which include 120 U.S. patents and certain foreign counterparts. Rights to additional patent portfolios were acquired subsequent to the acquisition of the assets of Global Patent Holdings, bringing the total number of patent portfolios controlled by the Acacia Technologies group to 42, covering technologies used in a wide variety of industries. The acquisitions expand and diversify the Acacia Technologies group's revenue generating opportunities. The Acacia Technologies group believes that its cash and cash equivalent balances, anticipated cash flow from operations and other external sources of available credit, will be sufficient to meet its cash requirements through June 30, 2007. However, due to the nature of our licensing business and uncertainties regarding the amount and timing of the receipt of license fees from potential infringers, stemming primarily from uncertainties regarding the outcome of enforcement actions, rates of adoption of our patented technologies, the growth rates of our existing licensees and other factors, we cannot currently predict the amount and timing of the receipt of license fee revenues with a sufficient degree of precision.
As a result, the Acacia Technologies group’s revenues may vary significantly from quarter to quarter, which could make its business difficult to manage and cause its quarterly results to be below market expectations. If this happens, the price of our AR-Acacia Technologies stock may decline significantly.
Technology company stock prices are especially volatile, and this volatility may depress the price of our AR-Acacia Technologies stock.
The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies have been highly volatile. We believe that various factors may cause the market price of our AR-Acacia Technologies stock to fluctuate, perhaps substantially, including, among others, the following:
| · | announcements of developments in our patent enforcement actions; |
| · | developments or disputes concerning our patents; |
| · | our or our competitors’ technological innovations; |
| · | developments in relationships with licensees; |
| · | variations in our quarterly operating results; |
| · | our failure to meet or exceed securities analysts’ expectations of our financial results; or |
| · | a change in financial estimates or securities analysts’ recommendations; |
| · | changes in management’s or securities analysts’ estimates of our financial performance; |
| · | changes in market valuations of similar companies; |
| · | announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies, or patents; and |
| · | failure to complete significant transactions. |
For example, the Nasdaq Computer Index had a range of $842.8-$1,037.2 during the 52-weeks ended December 31, 2005. Over the same period, our AR-Acacia Technologies stock fluctuated within a range of $4.38- $7.83. We believe fluctuations in our stock price during this period could have been caused by court rulings in our patent enforcement actions. Court rulings in patent enforcement actions are often difficult to understand, even when favorable or neutral to the value of our patents, and we believe that investors in the market may overreact, causing fluctuations in our stock prices that may not accurately reflect the impact of court rulings on our business operations and assets.
In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If our AR-Acacia Technologies stock was the object of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could materially harm the business and financial results of the Acacia Technologies group.
The markets served by the Acacia Technologies group are subject to rapid technological change, and if the Acacia Technologies group is unable to develop and acquire new technologies and patents, its revenues could stop growing or could decline.
The markets served by the licensees of Acacia Technologies group frequently undergo transitions in which products rapidly incorporate new features and performance standards on an industry-wide basis. Products for communications applications, high-speed computing applications, as well as other applications covered by the Acacia Technologies group’s intellectual property, are based on continually evolving industry standards. The Acacia Technologies group’s ability to compete in the future will, however, depend on its ability to identify and ensure compliance with evolving industry standards. This will require our continued efforts and success of acquiring new patent portfolios with licensing and enforcement opportunities. However, we expect to have sufficient liquidity and capital resources for the foreseeable future in order to maintain the level of acquisitions we believe we need to keep pace with these technological advances. However, outside influences may cause the need for greater liquidity and capital resources than expected, as described under the caption “Because our business operations are subject to many uncontrollable outside influences, we may not succeed” above.
The success of our Acacia Technologies group depends in part upon our ability to retain the best legal counsel to represent us in patent enforcement litigation.
In addition, the success of the Acacia Technologies group depends upon our ability to retain the best legal counsel to prosecute patent infringement litigation. As our patent enforcement actions increase, it will become more difficult to find the best legal counsel to handle all of our cases because many of the best law firms may have a conflict of interest that prevents its representation of our company.
RISKS RELATING TO OUR CAPITAL STRUCTURE
HOLDERS OF BOTH CLASSES OF OUR STOCK ARE STOCKHOLDERS OF ONE COMPANY, AND THE
FINANCIAL PERFORMANCE OF ONE GROUP COULD AFFECT THE OTHER, THUS EXPOSING THE
HOLDERS OF EACH GROUP'S STOCK TO THE RISKS OF AN INVESTMENT IN THE ENTIRE
COMPANY.
If we complete the spin off of CombiMatrix Corporation, holders of AR-CombiMatrix stock will no longer be shareholders of our company and may not be able to trade their stock on Nasdaq or a national exchange.
In January 2006, our board of directors approved a plan for our wholly owned subsidiary, CombiMatrix Corporation, to become an independent public company, subject to our Board and the directors of CombiMatrix Corporation determining that there will be no significant negative tax consequences to either company or the shareholders and completing the required filings with the SEC. If the conditions are met, we will redeem all of the issued and outstanding shares of AR-CombiMatrix stock, including any shares of AR-CombiMatrix stock sold pursuant to this prospectus, for all of the common stock of CombiMatrix Corporation. Although AR-CombiMatrix stock is currently traded on Nasdaq, CombiMatrix Corporation will need to apply for a new listing of its common stock following the redemption. There can be no assurance that CombiMatrix Corporation’s common stock will be accepted for listing on Nasdaq or any national exchange. CombiMatrix Corporation’s failure to establish a market for its common stock on Nasdaq or another national exchange could significantly reduce the value of CombiMatrix Corporation’s common stock.
Holders of both classes of our stock are stockholders of one company, and the financial performance of one group could affect the other, thus exposing the holders of each group’s stock to the risks of an investment in the entire company.
Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock are stockholders of a single company. The CombiMatrix group and the Acacia Technologies group are not separate legal entities. As a result, stockholders will continue to be subject to all of the risks of an investment in Acacia Research Corporation and all of our businesses, assets and liabilities. The issuance of our AR-CombiMatrix stock and our AR-Acacia Technologies stock and the allocation of assets and liabilities and
stockholders'stockholders’ equity between the CombiMatrix group and the Acacia Technologies group did not result in a distribution or spin-off to stockholders of any of our assets or liabilities and did not affect ownership of our assets or responsibility for our liabilities or those of our subsidiaries. The assets we attribute to the Acacia Technologies group could be subject to the liabilities of the CombiMatrix group, whether such liabilities arise from lawsuits, contracts or indebtedness that we attribute to the other
group, including the $1,964,000 of accounts payable, accrued expenses
and other liabilities attributed to CombiMatrix group for the year ended
December 31, 2004.group. If we are unable to satisfy one
group'sgroup’s liabilities out of the assets we attribute to it, we may be required to satisfy those liabilities with assets we have attributed to the other group. However, our business is conducted by our operating subsidiaries. Creditors of one subsidiary may not make claims against the assets of another subsidiary, absent a separate guaranty from the other subsidiaries. None of our subsidiaries currently guaranty the obligations of other subsidiaries.
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Financial effects from one group that affect our consolidated results of operations or financial condition could, if significant, affect the results of operations or financial condition of the other group and the market price of the common stock relating to the other group. In addition, net losses of either group and dividends or distributions on, or repurchases of, either class of common stock will reduce the funds we can pay as dividends on each class of common stock under Delaware law. For these reasons, you should read our consolidated financial information with the financial information we provide for each group elsewhere in this prospectus.
The market price of either class of our most recent Form 10-K and Form 10-Q incorporated by reference
at page 32 below.
THE MARKET PRICE OF EITHER CLASS OF OUR COMMON STOCK MAY NOT REFLECT THE
SEPARATE PERFORMANCE OF THE GROUP RELATED TO THAT CLASS OF COMMON STOCK.
common stock may not reflect the separate performance of the group related to that class of common stock.
The market price of our AR-CombiMatrix stock or AR-Acacia Technologies stock may not reflect the separate performance of the business of the group relating to that class of common stock. The market price of either class of common stock could simply reflect the performance of Acacia Research Corporation as a whole, or the market price of either class of common stock could move independently of the performance of the business of either group. Investors may discount the value of either class of common stock because it is part of a common enterprise rather than a stand-alone company.
THE MARKET PRICE OF EITHER CLASS OF OUR COMMON STOCK MAY BE AFFECTED BY FACTORS
THAT DO NOT AFFECT TRADITIONAL COMMON STOCK.
o THE COMPLEX NATURE OF THE TERMS OF OUR AR-COMBIMATRIX STOCK
AND AR-ACACIA TECHNOLOGIES STOCK MAY ADVERSELY AFFECT THE
MARKET PRICE OF EITHER CLASS OF COMMON STOCK.
The market price of either class of our common stock may be affected by factors that do not affect traditional common stock.
| · | The complex nature of the terms of our AR-CombiMatrix stock and AR-Acacia Technologies stock may adversely affect the market price of either class of common stock. |
The complex nature of the terms of our two classes of common stock, such as the convertibility of AR-CombiMatrix stock into AR-Acacia Technologies stock, or vice versa, and the potential difficulties investors may have understanding these terms, may adversely affect the market price of either class of common stock.
o THE MARKET PRICE OF OUR AR-ACACIA TECHNOLOGIES STOCK MAY BE
ADVERSELY AFFECTED BY THE FACT THAT HOLDERS HAVE LIMITED LEGAL
INTERESTS IN THE GROUP RELATING TO THE CLASS OF COMMON STOCK.
| · | The market price of our AR-Acacia Technologies stock may be adversely affected by the fact that holders have limited legal interests in the group relating to the class of common stock. |
For example, as described in greater detail in the subsequent risk factors, holders of either class of common stock generally do not have separate class voting rights with respect to significant matters affecting either group. In addition, upon our liquidation or dissolution, holders of either class of common stock will not have specific rights to the assets of the group relating to the class of common stock held and will not be entitled to receive proceeds that are proportional to the relative performance of that group. The voting rights of the AR-Acacia Technologies stock fluctuates based upon the relative market prices of the AR-CombiMatrix stock and the AR-Acacia Technologies stock,
as more fully discussed on page 2 under the caption, "VOTING RIGHTS OF AR-ACACIA
TECHNOLOGIES STOCK." If thestock. The record date for aour last stockholder meeting was March 14, 2005, and holders of AR-Acacia Technologies common stock would havehad 1.665 votes per share, and holders of CombiMatrix commonAR-CombiMatrix stock would havehad one vote per share.
o THE MARKET PRICE OF OUR AR-ACACIA TECHNOLOGIES STOCK MAY BE
ADVERSELY AFFECTED BY EVENTS INVOLVING THE COMBIMATRIX GROUP
OR THE PERFORMANCE OF THE AR-COMBIMATRIX STOCK.
| · | The market price of our AR-Acacia Technologies stock may be adversely affected by events involving the CombiMatrix group or the performance of the AR-CombiMatrix stock. |
Events, such as earnings announcements or other developments concerning one group that the market does not view favorably and which thus adversely affect the market price of the class of common stock relating to that group, may adversely affect the market price of the class of common stock relating to the other group. Because both classes of common stock are common stock of Acacia Research Corporation, an adverse market reaction to one class of common stock may, by association, cause an adverse reaction to the other class of common stock. This reaction may occur even if the triggering event was not material to us as a whole.
THE HOLDERS OF AR-COMBIMATRIX STOCK AND THE HOLDERS OF AR-ACACIA TECHNOLOGIES
STOCK HAVE ONLY LIMITED SEPARATE STOCKHOLDER RIGHTS.
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The holders of AR-CombiMatrix stock and the holders of AR-Acacia Technologies stock have only limited separate stockholder rights.
Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock have the rights customarily held by common stockholders. They also have these specific rights related to their corresponding group:
o certain rights with regard to dividends and liquidation;
o requirements for a mandatory dividend, redemption or
conversion upon the disposition of all or substantially all of
the assets of their corresponding group; and
o a right to vote on matters as a separate voting class in the
limited circumstances provided under Delaware law, by stock
exchange rules or as determined by our board of directors
(such as an amendment of our certificate of incorporation that
changes the rights, privileges or preferences of the class of
stock held by such stockholders).
o
| · | certain rights with regard to dividends and liquidation; |
| · | requirements for a mandatory dividend, redemption or conversion upon the disposition of all or substantially all of the assets of their corresponding group; |
| · | a right to vote on matters as a separate voting class in the limited circumstances provided under Delaware law, by stock exchange rules or as determined by our board of directors (such as an amendment of our certificate of incorporation that changes the rights, privileges or preferences of the class of stock held by such stockholders); and |
| · | we will not hold separate stockholder meetings for holders of AR-CombiMatrix stock and AR-Acacia Technologies stock. |
The holders of AR-CombiMatrix stock and the holders of AR-Acacia Technologies stock.
THE HOLDERS OF AR-COMBIMATRIX STOCK AND THE HOLDERS OF AR-ACACIA TECHNOLOGIES
STOCK WILL HAVE CERTAIN LIMITS ON THEIR RESPECTIVE VOTING POWERS.
o GROUP COMMON STOCK WITH A MAJORITY OF VOTING POWER CAN CONTROL
VOTING OUTCOMES.
stock will have certain limits on their respective voting powers.
| · | Group common stock with a majority of voting power can control voting outcomes. |
The holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will vote together as a single class, except in limited circumstances. If a separate vote on a matter by the holders of either our AR-CombiMatrix stock or our AR-Acacia Technologies stock is not required under Delaware law or by stock exchange rules, and if our board of directors does not require a separate vote, either class of common stock that is entitled to more than the number of votes required to approve such matter could control the outcome of such vote - even if the matter involves a divergence or conflict of the interests between the holders of our AR-CombiMatrix stock and our AR-Acacia Technologies stock.stock . In addition, if the holders of common stock having a majority of the voting power of all shares of common stock outstanding approve a merger, the terms of which did not require separate class voting under stock exchange rules, then the merger could be consummated - even if the holders of a majority of either class of common stock were to vote against the merger.
The nextlast time we anticipate needing to determinedetermined the floating voting power of our AR-Acacia Technologies stock will be at our next annual meeting. We
plan to holdwas for our annual meeting of stockholdersto be held on May 10, 2005,16, 2006, and our record date for voting purposes was March 14, 2005.27, 2006. As of March 14, 2005, 27,212,76927, 2006, the record date for the Annual Meeting, 27,766,909 shares of AR-AcaciaAR - Acacia Technologies stock and 38,992,402 shares of AR - CombiMatrix stock, the only outstanding voting securities of the Company, were issued and outstanding. As of March
14, 2005, 31,200,496 shares of AR-CombiMatrix stock were issued and outstanding.
For purposes ofAt the annual meeting, each holderoutstanding share of AR-AcaciaAR - Acacia Technologies stock will have 1.665 be entitled to 4.043votes, per share, and each holderoutstanding share of AR-CombiMatrixAR - CombiMatrix stock will be entitled to one vote. The voting rights of the AR - Acacia Technologies stock have onebeen determined based on the market values of each class of Acacia common stock in accordance with the formula set forth in our Restated Certificate of Incorporation. The holders of AR - Acacia Technologies stock and AR - CombiMatrix stock will vote per share.together as a single class at the meeting. Collectively, holders of AR-Acacia Technologies stock will havehad a total of 45,309,260112,261,613 potential votes, or approximately 62.50%74.22% of the total available votes. o GROUP COMMON STOCK WITH LESS THAN MAJORITY VOTING POWER CAN
BLOCK ACTION IF A CLASS VOTE IS REQUIRED.
As the number of issued and outstanding shares of each class of stock increases, and as the market price of each class of stock fluctuates, the relative voting power between the classes of stock could change significantly.
| · | Group common stock with less than majority voting power can block action if a class vote is required. |
If Delaware law, stock exchange rules or our board of directors requires a separate vote on a matter by the holders of either our AR-CombiMatrix stock or our AR-Acacia Technologies stock, such as a proposal to amend the terms of one class of stock, those holders could prevent approval of the matter, even if the holders of a majority of the total number of votes cast or entitled to be cast, voting together as a class, were to vote in favor of it.
o HOLDERS OF ONLY ONE CLASS OF COMMON STOCK CANNOT ENSURE THAT
THEIR VOTING POWER WILL BE SUFFICIENT TO PROTECT THEIR
INTERESTS.
| · | Holders of only one class of common stock cannot ensure that their voting power will be sufficient to protect their interests. |
Since the relative voting power per share of AR-CombiMatrix stock and AR-Acacia Technologies stock will fluctuate based on the market values of the two classes of common stock, the relative voting power of a class of common stock could decrease. As a result, holders of shares of only one of the two classes of common stock cannot ensure that their voting power will be sufficient to protect their interests.
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OUR RESTATED CERTIFICATE OF INCORPORATION MAY BE AMENDED TO INCREASE OR DECREASE
THE AUTHORIZED SHARES OF EITHER CLASS OF COMMON STOCK WITHOUT THE APPROVAL OF
EACH CLASS VOTING SEPARATELY.
Our Restated Certificate of Incorporation may be amended to increase or decrease the authorized shares of either class of common stock without the approval of each class voting separately.
Our restated certificate of incorporation provides that an amendment to our restated certificate to increase or decrease the number of authorized shares of either class of common stock will require the approval of the holders of a majority of the voting power of all shares of common stock, voting together as a single class, and will not require the approval of each class of stock voting as a separate class. Accordingly, if the holders of one class of common stock hold a majority of the voting power of all shares of common stock, then that majority could approve an amendment to our restated certificate to increase or decrease the authorized shares of stock of either class without the approval of the holders of the minority class of stock.
STOCKHOLDERS MAY NOT HAVE ANY REMEDIES FOR BREACH OF FIDUCIARY DUTIES IF ANY
ACTION BY OUR DIRECTORS OR OFFICERS HAS A DISADVANTAGEOUS EFFECT ON EITHER CLASS
OF COMMON STOCK.
Stockholders may not have any remedies for breach of fiduciary duties if any action by our directors or officers has a disadvantageous effect on either class of common stock.
Stockholders may not have any remedies if any action or decision of our directors and officers has a disadvantageous effect on either class of common stock compared to the other class of common stock. We are not aware of any legal precedent under Delaware law involving the fiduciary duties of directors and officers of corporations having two classes of common stock, or separate classes or series of capital stock, the rights of which, like our AR-CombiMatrix stock and AR-Acacia Technologies stock, are defined by reference to separate businesses of the corporation.
Principles of Delaware law established in cases involving differing treatment of two classes of capital stock or two groups of holders of the same class of capital stock provide that a board of directors owes an equal duty to all stockholders regardless of class or series. Under these principles of Delaware law and the related principle known as the "business“business judgment rule,"” absent abuse of discretion, a good faith business decision made by a disinterested and adequately informed board of directors, board of directors'directors’ committee or officer with respect to any matter having different effects on holders of AR-CombiMatrix stock and holders of AR-Acacia Technologies stock would be a defense to any challenge to such determination made by or on behalf of the holders of either class of common stock.
As
Numerous potential conflicts of March 14, 2005,interests exist between our officersAR-CombiMatrix stock and directors held the following
beneficial interest in our AR-Acacia Technologies stock andwhich may be difficult to resolve by our AR-CombiMatrix
stock:
AMOUNT AND NATURE
OF BENEFICIAL AMOUNT AND NATURE OF
OWNERSHIP OF AR - PERCENT BENEFICIAL OWNERSHIP PERCENT
ACACIA TECHNOLOGIES OF OF AR - COMBIMATRIX OF
BENEFICIAL OWNER STOCK CLASS(1) STOCK CLASS(1)
- ----------------------------------- ------------------- --------- -------------------- --------
DIRECTORS AND EXECUTIVE OFFICERS(2)
Paul R. Ryan(3) 1,372,325 4.9% 705,682 2.2%
Thomas B. Akin(4) 145,394 * 138,898 *
Rigdon Currie(5) 38,750 * 116,250 *
Fred A. de Boom(6) 85,550 * 63,892 *
Edward W. Frykman(7) 74,340 * 56,407 *
Robert L. Harris, II(8) 918,667 3.3% 514,782 1.6%
G. Louis Graziadio, III(9) 55,750 * 46,030 *
Amit Kumar, Ph.D.(10) 419,036 1.5% 905,827 2.8%
Clayton J. Haynes(11) 111,830 * 58,506 *
Robert A. Berman(12) 452,269 1.6% 216,778 *
All Directors and Executive Officers as a Group 3,673,911 13.2% 2,823,052 8.9%
(ten persons)(13)
- -------------------------
* Less thanboard or which may be resolved adversely to one percent
(1) The percentage of shares beneficially owned is based on 27,212,769
shares of AR - Acacia Technologies stock and 31,200,496 shares of AR -
CombiMatrix stock outstanding as of March 14, 2005. Beneficial
ownership is determined under rules and regulations of the Securities
22
and Exchange Commission ("SEC"). Shares of common stock subject to
options that are currently exercisable or exercisable within 60 days
after March 14, 2005, are deemed to be outstanding and beneficially
owned by the person holding such options for the purpose of computing
the number of shares beneficially owned and the percentage ownership of
such person, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table, and subject to applicable
community property laws, the Company believes that such persons have
sole voting and investment power with respect to all shares of the
Company's common stock shown as beneficially owned by them.
(2) The address for each of the Company's directors and executive officers
is the Company's principal offices, Acacia Research Corporation, 500
Newport Center Drive, Newport Beach, California 92660.
(3) Includes 7,000 shares of AR - Acacia Technologies Stock and 7,000
shares of AR - CombiMatrix stock held by Mr. Ryan's daughter, and
915,086 shares of AR - Acacia Technologies stock and 507,897 shares of
AR - CombiMatrix stock issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days of
March 14, 2005.
(4) Includes 85,244 shares of AR - Acacia Technologies Stock and 35,412
shares of AR - CombiMatrix stock held by Talkot Crossover Fund, L.E.
("Talkot") and 60,150 shares of AR - Acacia Technologies stock and
103,486 shares of AR - CombiMatrix stock issuable upon exercise of
options that are currently exercisable or will become exercisable
within 60 days of March 14, 2005. Mr. Akin serves as managing general
partner of Talkot.
(5) Includes 38,750 shares of AR - Acacia Technologies stock and 116,250
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 14, 2005.
(6) Includes 60,150 shares of AR - Acacia Technologies stock and 48,486
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 14, 2005.
(7) Includes 54,350 shares of AR - Acacia Technologies stock and 48,486
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 14, 2005.
(8) Includes 20,000 shares of AR - Acacia Technologies stock held by the
R&S Harris Trust, of which Mr. Harris is a Trustee and 898,667 shares
of AR - Acacia Technologies stock and 514,782 shares of AR -
CombiMatrix stock issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days of March 14,
2005. 22,000 AR - Acacia Technologies stock options and 12,280 AR -
CombiMatrix stock options will expire if not exercised by April 9,
2005.
(9) Includes 55,750 shares of AR - Acacia Technologies stock and 46,030
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 14, 2005.
(10) Includes 417,936 shares of AR - Acacia Technologies stock and 877,213
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 14, 2005.
(11) Includes 111,830 shares of AR - Acacia Technologies stock and 58,506
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 14, 2005.
(12) Includes 452,269 shares of AR - Acacia Technologies stock and 216,778
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 14, 2005.
(13) Includes 3,064,938 of AR - Acacia Technologies stock and 2,537,914
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 14, 2005.
NUMEROUS POTENTIAL CONFLICTS OF INTERESTS EXIST BETWEEN OUR AR-COMBIMATRIX STOCK
AND OUR AR-ACACIA TECHNOLOGIES STOCK WHICH MAY BE DIFFICULT TO RESOLVE BY OUR
BOARD OR WHICH MAY BE RESOLVED ADVERSELY TO ONE OF THE CLASSES.
classes. The existence of separate classes of common stock could give rise to occasions when the interests of the holders of AR-CombiMatrix stock and AR-Acacia Technologies stock diverge or conflict. Examples include determinations by our directors or officers to:
o pay or omit the payment of dividends on AR-CombiMatrix stock
or AR-Acacia Technologies stock;
23
o allocate consideration to be received by holders of each of
the classes of common stock in connection with a merger or
consolidation involving Acacia Research Corporation;
o convert one class of common stock into shares of the other;
o approve certain dispositions of the assets of either group;
o allocate the proceeds of future issuances of our stock either
to the Acacia Technologies group or the CombiMatrix group;
o allocate corporate opportunities between the groups;
o make other operational and financial decisions with respect to
one group that could be considered detrimental to the other
group; and
o Acacia Technology group may seek to license and enforce its
patented technologies against companies that have business
relationships or potential business relationships with
CombiMatrix group.
| · | pay or omit the payment of dividends on AR-CombiMatrix stock or AR-Acacia Technologies stock ; |
| · | allocate consideration to be received by holders of each of the classes of common stock in connection with a merger or consolidation involving Acacia Research Corporation; |
| · | convert one class of common stock into shares of the other; approve certain dispositions of the assets of either group; |
| · | allocate the proceeds of future issuances of our stock either to the Acacia Technologies group or the CombiMatrix group; |
| · | allocate corporate opportunities between the groups; |
| · | make other operational and financial decisions with respect to one group that could be considered detrimental to the other group; and |
| · | Acacia Technology group may seek to license and enforce its patented technologies against companies that have business relationships or potential business relationships with CombiMatrix group. |
When making decisions with regard to matters that create potential diverging or conflicting interests, our directors and officers will act in accordance with their fiduciary duties, the terms of our restated certificate of incorporation, and, to the extent applicable, our management and allocation policies.
THE PERFORMANCE OF ONE GROUP OR THE DIVIDENDS PAID TO ONE GROUP MAY ADVERSELY
AFFECT THE DIVIDENDS AVAILABLE FOR THE OTHER GROUP.
The performance of one group or the dividends paid to one group may adversely affect the dividends available for the other group.
Our board of directors currently has no intention to pay dividends on our AR-CombiMatrix stock or our AR-Acacia Technologies stock. Determinations as to future dividends on our AR-CombiMatrix stock and our AR-Acacia Technologies stock will be based primarily on the financial condition, results of operations and business requirements of the relevant group and Acacia Research Corporation as a whole. Subject to the limitations referred to below, our board of directors has the authority to declare and pay dividends on our AR-CombiMatrix stock and our AR-Acacia Technologies stock in any amount and could, in its sole discretion, declare and pay dividends exclusively on our AR-CombiMatrix stock, exclusively on our AR-Acacia Technologies stock, or on both, in equal or unequal amounts. Our board of directors will not be required to consider the amount of dividends previously declared on each class, the respective voting or liquidation rights of each class or any other factor.
The performance of one group may cause our board of directors to pay more or less dividends on the common stock relating to the other group than if that other group was a stand-alone company. In addition, Delaware law and our restated certificate of incorporation impose limitations on the amount of dividends which may be paid on each class of common stock.
PROCEEDS OF MERGERS OR CONSOLIDATIONS MAY BE ALLOCATED UNFAVORABLY.
Proceeds of mergers or consolidations may be allocated unfavorably.
Our restated certificate of incorporation does not contain any provisions governing how consideration to be received by holders of common stock in connection with a merger or consolidation involving Acacia Research Corporation is to be allocated among holders of each class of common stock. Our board of directors will determine the percentage of the consideration to be allocated to holders of each class of common stock in any such transaction. Such percentage may be materially more or less than that which might have been allocated to such holders had our board of directors chosen a different method of allocation.
HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A
CONVERSION OF GROUP COMMON STOCK.
Holders of either class of common stock may be adversely affected by a conversion of group common stock.
Our board of directors could, in its sole discretion and without stockholder approval, determine to convert shares of AR-Acacia Technologies stock into shares of AR-CombiMatrix stock, or vice versa, at a time when either or both classes of common stock may be considered to be overvalued or undervalued. Any such conversion would dilute the interests in Acacia Research Corporation of the holders of the class of common stock being issued in the conversion. It could also give holders of shares of the class of common stock converted a greater or lesser premium than any premium that might be paid by a third-party buyer of all or substantially all of the assets of the group whose stock is converted.
24
HOLDERS OF EITHER CLASS OF COMMON STOCK COULD BE ADVERSELY AFFECTED BY A
DISPOSITION OF THE ASSETS ATTRIBUTED TO THEIR RESPECTIVE GROUPS.
Holders of either class of common stock could be adversely affected by a disposition of the assets attributed to their respective groups.
Our board of directors could, in its sole discretion and without stockholder approval, determine to dispose of all or substantially all the assets of a group. If a disposition of group assets occurs at a time when those assets are considered undervalued, then holders of that group'sgroup’s stock would receive less consideration than they could have received had the assets been disposed of at a time when they had a higher value.
PROCEEDS OF FUTURE ISSUANCES OF OUR STOCK COULD BE ATTRIBUTED UNFAVORABLY.
Proceeds of future issuances of our stock could be attributed unfavorably.
We may in the future issue a new class of stock, such as a class of preferred stock, or additional shares of AR-CombiMatrix stock or AR-Acacia Technologies stock. Proceeds from any future issuance of any class of stock would be attributed among the CombiMatrix group or the Acacia Technologies group as determined by our board of directors. There is no requirement that the proceeds from an issuance of AR-CombiMatrix stock or AR-Acacia Technologies stock be attributed to the corresponding group. Such allocations might be materially more or less for the respective groups than what might have been attributed had our board of directors chosen a different allocation method. Also, any designated preferred class may be designed to reflect the performance of Acacia Research Corporation as a whole, rather than the performance of the CombiMatrix group or the Acacia Technologies group.
ALLOCATION OF CORPORATE OPPORTUNITIES COULD FAVOR ONE GROUP OVER ANOTHER.
Allocation of corporate opportunities could favor one group over another.
Our board of directors may be required to allocate corporate opportunities between the groups. In some cases, our directors could determine that a corporate opportunity, such as a business that we are acquiring, should be shared by the groups. Any such decisions could favor one group at the expense of the other.
OTHER OPERATIONAL AND FINANCIAL DECISIONS WHICH MAY FAVOR ONE GROUP OVER THE
OTHER.
Other operational and financial decisions which may favor one group over the other.
Our board of directors or our senior officers will review other operational and financial matters affecting the CombiMatrix group and the Acacia Technologies group, including the allocation of financing resources and capital, technology and know-how and corporate overhead, taxes, debt, interest and other matters. Any decision of our board of directors or our senior officers in these matters could favor one group at the expense of the other.
OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ALLOCATION POLICIES WITHOUT
STOCKHOLDER APPROVAL TO THE DETRIMENT OF EITHER GROUP.
Our board of directors may change our management and allocation policies without stockholder approval to the detriment of either group.
Our board of directors may modify or rescind our policies with respect to the allocation of corporate overhead, taxes, debt, interest and other matters, or may adopt additional policies, in its sole discretion without stockholder approval. A decision to modify or rescind these policies, or adopt additional policies could have different effects on holders of either class of common stock or could result in a benefit or detriment to one class of stockholders compared to the other class. Our board of directors will make any such decision in accordance with its good faith business judgment that the decision is in the best interests of Acacia Research Corporation and all of our stockholders as a whole.
EITHER GROUP MAY FINANCE THE OTHER GROUP ON TERMS UNFAVORABLE TO ONE OF THE
GROUPS.
Either group may finance the other group on terms unfavorable to one of the groups.
We may transfer cash and other property between groups to finance their business activities. The group providing the financing will be subject to the risks relating to the group receiving the financing. We will account for those transfers generally as a short-term or long-term loan between groups or as a repayment of a previous borrowing.
THERE ARE LIMITS ON THE CONSIDERATION WHICH MAY BE RECEIVED BY THE STOCKHOLDERS
IN THE EVENT OF THE DISPOSITION OF ASSETS OF A GROUP.
There are limits on the consideration which may be received by the stockholders in the event of the disposition of assets of a group.
Our restated certificate of incorporation provides that if a disposition of all or substantially all of the properties and assets of either group occurs, we must, subject to certain exceptions:
25
o distribute through a dividend or redemption to holders of the
class of common stock relating to such group an amount equal
to the net proceeds of such disposition; or
o convert at a 10% premium such common stock into shares of the
class of common stock relating to the other group.
| · | distribute through a dividend or redemption to holders of the class of common stock relating to such group an amount equal to the net proceeds of such disposition; or |
| · | convert at a 10% premium such common stock into shares of the class of common stock relating to the other group. |
If the group subject to the disposition were a separate, independent company and its shares were acquired by another person, certain costs of that disposition, including corporate level taxes, might not be payable in connection with that acquisition. As a result, stockholders of the separate, independent company might receive a greater amount than the net proceeds that would be received by holders of the class of common stock relating to that group if the assets of such group were sold. In addition, we cannot assure you that the net proceeds per share of the common stock relating to that group will be equal to or more than the market value per share of such common stock prior to or after announcement of a disposition.
The term "substantially“substantially all of the properties and assets"assets” of a group is subject to potentially conflicting interpretations. Resolution of such a dispute could adversely impact the holders of either the class of common stock related to the assets being disposed or the holders of the other class because the consideration, if any, to be received by the holders of the class related to the disposed assets may depend on whether the disposition involved "substantially
all"“substantially all” of the properties and assets of that class.
HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A
REDEMPTION OF THEIR COMMON STOCK.
Holders of either class of common stock may be adversely affected by a redemption of their common stock.
We are entitled to redeem the outstanding common stock relating to a group when all or substantially all of that group'sgroup’s assets are sold. We can redeem the assets for cash, securities, a combination of cash and securities or other property at fair value. A disposition-related redemption could occur when the assets being disposed of are considered undervalued. If that were the case, the holders of our common stock related to that group would receive less consideration for their shares than they may deem reasonable.
We can also redeem on a pro rata basis all of the outstanding shares of a group'sgroup’s common stock for shares of the common stock of one or more of our wholly owned subsidiaries. If this were to occur, the holders of the redeemed class of common stock would no longer have stockholder voting rights in Acacia Research Corporation or any other benefits to be derived from holding a class of stock in Acacia Research Corporation. In addition, if the outstanding shares of a class of our common stock are redeemed for shares that are not publicly traded, the holders of such redeemed stock will no longer be able to publicly trade their shares and accordingly their investment will be substantially less liquid.
OUR CAPITAL STRUCTURE AND THE VARIABLE VOTE PER SHARE COULD ENABLE A POTENTIAL
ACQUIRER TO TAKE CONTROL OF OUR COMPANY THROUGH THE ACQUISITION OF ONLY ONE OF
THE CLASSES OF OUR COMMON STOCK.
Our capital structure and the variable vote per share could enable a potential acquirer to take control of our company through the acquisition of only one of the classes of our common stock.
A potential acquirer could acquire control of Acacia Research Corporation by acquiring shares of common stock having a majority of the voting power of all shares of common stock outstanding. Such a majority could be obtained by acquiring a sufficient number of shares of both classes of common stock or, if one class of common stock has a majority of such voting power, only shares of that class. Currently, our AR-Acacia Technologies stock has a majority of the voting power. As a result, currently, it might be possible for an acquirer to obtain control of Acacia Research Corporation by purchasing only shares of AR-Acacia Technologies stock.
DECISIONS BY DIRECTORS AND OFFICERS THAT AFFECT DIFFERENTLY ONE CLASS OF OUR
COMMON STOCK COMPARED TO THE OTHER COULD ADVERSELY AFFECT THE MARKET VALUE OF
EITHER OR BOTH OF THE CLASSES OF OUR COMMON STOCK.
Decisions by directors and officers that affect differently one class of our common stock compared to the other could adversely affect the market value of either or both of the classes of our common stock.
The relative voting power per share of our AR-CombiMatrix stock and our AR-Acacia Technologies stock and the number of shares of one class of common stock issuable upon the conversion of the other class of common stock will vary depending upon the relative market values of our AR-CombiMatrix stock and our AR-Acacia Technologies stock. The market value of either or both classes of common stock could be affected by market reaction to decisions by our board of directors or our management that investors perceive to affect differently one class of common stock compared to the other. These decisions could involve changes to our management and allocation policies, allocations of corporate opportunities and financing resources between groups, and changes in dividend policies.
26
INVESTORS MAY NOT VALUE OUR AR-COMBIMATRIX STOCK AND OUR AR-ACACIA TECHNOLOGIES
STOCK BASED ON GROUP FINANCIAL INFORMATION AND POLICIES.
Investors may not value our AR-CombiMatrix stock and our AR-Acacia Technologies stock based on group financial information and policies.
We cannot assure you that investors will value our AR-CombiMatrix stock and our AR-Acacia Technologies stock based on the reported financial results and prospects of the separate groups or the dividend policies established by our board of directors with respect to those groups. Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will continue to be common stockholders of Acacia Research Corporation subject to all the risks associated with an investment in Acacia Research Corporation as a whole. Additionally, the separate stockholder rights related to each group are limited and relate to events that may never occur, such as dividend and liquidation rights and the disposition of all or substantially all of the assets of a group. Accordingly, investors may discount the value of AR-CombiMatrix stock and AR-Acacia Technologies stock because both groups are part of a common enterprise rather than a stand-alone entity and each class of stock has limited separate stockholder rights.
HOLDERS OF AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK MAY NOT RECEIVE
A PREMIUM FROM AN INVESTOR ACQUIRING CONTROL OF THEIR RESPECTIVE CLASSES OF
STOCK.
Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock may not receive a premium from an investor acquiring control of their respective classes of stock.
Control of AR-CombiMatrix stock or AR-Acacia Technologies stock may not provide control of Acacia Research Corporation as a whole. Accordingly, unlike many acquisition transactions, holders of AR-CombiMatrix stock and AR-TechnologiesAR-Acacia Technologies stock may not receive a controlling interest premium from an investor acquiring control of their respective classes of stock.
THERE ARE CERTAIN PROVISIONS IN OUR TWO-CLASS CAPITAL STRUCTURE THAT COULD HAVE
ANTI-TAKEOVER EFFECTS.
There are certain provisions in our two-class capital structure that could have anti-takeover effects.
The existence of the two classes of common stock could, under certain circumstances, prevent stockholders from profiting from an increase in the market value of their shares as a result of a change in control of Acacia Research Corporation by delaying or preventing such change in control. The existence of two classes of common stock could present complexities and could, in certain circumstances, pose obstacles, financial and otherwise, to an acquiring person. We could, in the sole discretion of our board of directors and without stockholder approval, exercise the right to convert the shares of one class of common stock into shares of the other at a 10% premium over their respective average market values. This conversion could result in additional dilution to persons seeking control of Acacia Research Corporation.
Our board of directors could issue shares of preferred stock or common stock that could be used to create voting or other impediments to discourage persons seeking to gain control of Acacia Research Corporation, and preferred stock could also be privately placed with purchasers favorable to our board of directors in opposing such action.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This prospectus contains "forward-looking statements"forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 with respect1995. Reference is made in particular to the financial condition, resultsdescription of operations, business strategies, operating
efficiencies or synergies, competitive positions, growth opportunities for
existing patents, technologies, products,our plans and objectives of management,
markets for stock of Acaciafuture operations, assumptions underlying such plans and objectives, and other matters. Statementsforward-looking statements included in this prospectus
thatprospectus. Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms. Such statements are not historical facts are hereby identified as "forward-looking
statements" for the purpose of the safe harbor provided by Section 21E of the
Exchange Actbased on management’s current expectations and Section 27A of the Securities Act. Such forward-looking
statements, including, without limitation, those relating to the future business
prospects, revenues and income of Acacia, wherever they occur, are necessarily
estimates reflecting the best judgment of the senior management of Acacia on the
date on which they were made, or if no date is stated, as of the date of this
prospectus. These forward-looking statements are subject to risks, uncertainties
and assumptions, including those described in the section entitled "Risk
Factors," beginning on page 5 that may affect the operations, performance,
development and results of our business. Because the factors discussed in this
prospectus could cause actual results or outcomes to differ materially from
those expressed in any forward-looking statements made by us or on our behalf,
you should not place undue reliance on any such forward-looking statements. New
factors emerge from time to time, and it is not possible for us to predict which
factors will arise. In addition, we cannot assess the impact of each factor on
our business or the extent to which any factor, or combinationa number of factors mayand uncertainties, which could cause actual results to differ materially from those containeddescribed in the forward-looking statements. Such statements address future events and conditions concerning product development, capital expenditures, earnings, litigation, regulatory matters, markets for products and services, liquidity and capital resources and accounting matters. Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we and our subsidiaries operate, and other circumstances affecting anticipated revenues and costs, as more fully disclosed in our discussion of risk factors beginning on page 3.
We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking
statements.
27
You should understandstatements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Additional factors that important factors discussed in the "Risk
Factors" section, could affect our future results and could cause thosesuch results to differ materially from those expresseddescribed in such forward-looking statements.
We undertake no obligation to publicly update or revise anythe forward-looking statements whether as a result of new information, future
events or any other reason. All subsequent forward-looking statements
attributable to Acacia or any person acting on our behalf are expressly
qualifiedset forth in their entirety by the cautionary statements contained or referred
to herein. In light of these risks, uncertainties and assumptions,connection with the forward-looking events discussedstatements. As used in this prospectus, may not occur. We are
required“we,” “us” and “our” refer to update this prospectusAcacia Research Corporation and the registration statement with a
post-effective amendment to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement, including
this prospectus.
its subsidiary companies.
USE OF PROCEEDS
All of our AR-Acacia Technologies stock being offered under this
Unless otherwise indicated in an accompanying prospectus is being sold by or forsupplement, we intend to use the account of the selling stockholders. We
will not receive anynet proceeds from the sale of the securities offered by this prospectus and the related accompanying prospectus supplement to provide working capital for our businesses, including our subsidiaries.
DESCRIPTION OF WARRANTS
We may in the future issue warrants for the purchase of our AR-CombiMatrix stock or our AR-Acacia Technologies stock. Warrants may be issued independently, together with any other securities offered by any prospectus supplement or through a dividend or other distribution to our stockholders and may be attached to or separate from the related securities. Warrants may be issued under a warrant agreement to be entered into between us and a warrant agent specified in the applicable prospectus supplement. The warrant agent will act solely as our agent in connection with the warrants of a particular series and will not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants. The following sets forth certain general terms and provisions of the warrants that may be offered under this prospectus. The applicable warrant agreement and form of warrant certificate will be filed as exhibits to or incorporated by reference in the registration statement. Further terms of the warrants and the applicable warrant agreement will be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the terms of the warrants in respect of which this prospectus is being delivered, including, where applicable, the following: (a) the title of the warrants; (b) the aggregate number of the warrants; (c) the price or prices at which the warrants will be issued; (d) the designation, number and terms of the shares of our AR-CombiMatrix stock or our AR-Acacia Technologies stock by or for the accountpurchasable upon exercise of the selling stockholders.
SELLING STOCKHOLDERS
On December 15, 2004, we agreed to issue 3,938,832 shareswarrants; (e) the designation and terms of the other securities, if any, with which the warrants are issued and the number of the warrants issued with each security; (f) the date, if any, on and after which the warrants and the related AR-CombiMatrix stock or AR-Acacia Technologies stock, to Global Patent Holdings, LLC, as partial consideration forif any, will be separately transferable; (g) the purchaseprice at which each share of its subsidiary companies, holding an aggregate of 27 patent
portfolios, which includes 120 U.S. patents. The transaction closed on January
28, 2005. Global Patent Holdings, LLC, subsequently distributed the shares, pro
rata, to its members. We have agreed to register for resale by these members,
now stockholders in our company and who are listed below (the "selling
stockholders"), all of the shares ofAR-CombiMatrix stock or AR-Acacia Technologies stock we issuedpurchasable upon exercise of the warrants may be purchased; (h) the date on which the right to them.
The table below presents information regardingexercise the selling stockholderswarrants will commence and the date on which that right will expire; (i) the minimum or maximum amount of the warrants which may be exercised at any one time; (j) information with respect to book-entry procedures, if any; (k) a discussion of federal income tax considerations; and (l) any other terms of the warrants, including terms, procedures and limitations relating to the transferability, exchange and exercise of the warrants.
PLAN OF DISTRIBUTION
We may, from time to time, sell any or all of our shares of
our AR-Acacia Technologiescommon stock
that theyon any stock exchange, market or trading facility on which the shares are traded or in private transactions, up to a maximum aggregate sale price of $75,000,000. These sales may be at fixed or negotiated prices. Underwriters may offer and sell
from time to time under this prospectus. Percentages of beneficial ownership are
based upon 27,214,852 shares of AR-Acacia Technologies stock issued and
outstanding as of March 28, 2005.
----------------------------------
PERCENTAGE OF SHARES OF AR-ACACIA
TECHNOLOGIES STOCK BENEFICIALLY
OWNED
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES OF AR-ACACIA NUMBER OF SHARES OF BEFORE OFFERING AFTER OFFERING
TECHNOLOGIES STOCK TO BE RESOLD AR-ACACIA TECHNOLOGIES OF THE RESALE OF THE RESALE
SELLING STOCKHOLDERS(1) IN THE OFFERING(2) STOCK OWNED SHARES SHARES
- ----------------------- ------------------ ----------- ------ ------
Anthony O. Brown(3) 1,294,141 1,294,141 4.76% 0%
Richard A. Angell 543,519 543,519 2.00% 0%
Daniel B. Asher 581,522 581,522 2.14% 0%
Scott D. Paseltiner 543,519 543,519 2.00% 0%
Marshall N. Toplansky 22,904 22,904 0.08% 0%
Michael Vender(4) 34,551 34,551 0.13% 0%
James D. Esser 24,687 24,687 0.09% 0%
Richard Taylor(5) 171,302 171,302 0.63% 0%
Thomas Harney(6) 49,374 49,374 0.18% 0%
Jack Lavin 44,426 44,426 0.16% 0%
James C. Cohen 9,875 9,875 0.04% 0%
Patrick J. McGarvey 49,374 49,374 0.18% 0%
Robert A. Krasnow 24,687 24,687 0.09% 0%
KDS LLC(7) 74,061 74,061 0.27% 0%
Thomas Henrich (8) 90,832 90,832 0.33% 0%
Global Patent Holdings LLC(9) 34,546 34,546 0.13% 0%
Dooyong Lee 345,512 345,512 1.27% 0%
---------- ---------- ------ ---
Total 3,938,832 3,938,832 14.48% 0%
- -----------
28
(1) This table is based upon information supplied to us by the selling
stockholders.
(2) Assumes that the selling stockholders sell all of the shares available
for resale.
(3) 252,715 shares are owned by Bank of America, Trustee for the benefit of
the Anthony O. Brown IRA Rollover Plan, and are beneficially owned by
Anthony O. Brown.
(4) These shares are registered to Michael Vender, Trustee of the Michael
Vender Trust and are beneficially owned by Michael Vender.
(5) These shares are registered to Delaware Charter, as Trustee for the
benefit of Richard Taylor and are beneficially owned by Richard Taylor.
(6) These shares are registered to Thomas Harney, Trustee of the Thomas M.
Harney Revocable Trust U/D/T August 31, 1988, and are beneficially
owned by Thomas Harney.
(7) Keith Morton, David Snyder and Scott Turbin are members of KDS, LLC and
share voting and investment control over the shares held by KDS, LLC.
(8) These shares are registered to Lincoln Financial Group, Trustee for the
benefit of the Thomas Henrich Profit Sharing Plan and are beneficially
owned by Thomas Henrich.
(9) All the selling stockholders are members of Global Patent Holdings.
Anthony O. Brown, Richard A. Angell, and Scott D. Paseltiner are
affiliates of Global Patent Holdings LLC and control the voting and/securities at a fixed price or
investment power over the shares held by Global Patent Holdings LLC.
Daniel B. Asher owns approximately 15% of the membership interest of
Global Patent Holdings and as a result, may be deemed an affiliate of
Global Patent Holdings.
RELATIONSHIP OF SELLING STOCKHOLDERS TO THE COMPANY
Anthony O. Brown, a Selling Stockholder, has the right to appoint a
director to any vacancy on our board of directors as further described in our
Form 8-K filed on February 1, 2005 and incorporated by reference on page 32
below. In addition, we have entered into an agreement with Mr. Brown for
consulting services for two years, at 1200 hours per year, ending on January 27,
2007, and for a non-compete agreement for four years, ending January 27, 2009.
In consideration thereof, we will pay Mr. Brown $2,000,000 in equal bi-weekly
installments over the next two years. The foregoing agreements were entered into
with Mr. Brown as part of our acquisition of assets from Global Patent Holdings,
LLC described above and further described in our Form 8-K filed on February 1,
2005 and incorporated by reference on page 32 below.
Other than as set forth above with respect to Mr. Brown, none of the
other selling stockholders listed above has held any position or office, or has
had any material relationship, with our company or any of its affiliates within
the past three years.
PLAN OF DISTRIBUTION
We are registering the shares of AR-Acacia Technologies stock on behalf
of the selling stockholders. A selling stockholder is a person named in the
section entitled "Selling Stockholders" and also includes any donee, pledgee,
transferee or other successor-in-interest selling shares received after the date
of this prospectus from a selling stockholder as a gift or other non-sale
related transfer.
We do not know of any plan of distribution for the resale of our
AR-Acacia Technologies stock by the selling stockholders. We will not receive
any of the proceeds from the sale by the selling stockholders of any of the
resale shares.
29
We expect that the selling stockholders or transferees may sell the
resale shares from time to time in one or more transactions on Nasdaq or any
other exchange upon which our company may become listed, in privately negotiated
transactions, through put or call option transactions relating to the shares, or
a combination of such methods of sale, at fixed prices, which may be changed, at market prices prevailing at the time of sale, at prices related to suchthe prevailing market prices or at negotiated prices. The selling stockholdersWe may also, from time to time, authorize dealers or agents to offer and sell these securities upon such terms and conditions as may be set forth in the resale shares to or through broker-dealers, and such broker-dealersapplicable prospectus supplement. In connection with the sale of any of these securities, underwriters may receive compensation from us in the selling stockholdersform of underwriting discounts or thecommissions and may also receive commissions from purchasers of the resale shares,securities for whom they may act as agent. Underwriters may sell the securities to or both.
The selling stockholders may also enter into hedging transactions,
options or other transactions with broker-dealers or other financial
institutions that require the delivery to these broker-dealers or other
financial institutions of shares offered by this prospectus, which shares these
broker-dealer or other financial institution may resell pursuant to this
prospectus (as amended or supplemented to reflectthrough dealers, and such transaction). These
broker-dealersdealers may receive compensation in the form of discounts, concessions or commissions from selling stockholders and/the underwriters or commissions from the purchasers of shares for whom
these broker-dealerswhich they may act as agentsagents. The maximum compensation or discount to whom they sell as principal,be received by any member of the National Association of Securities Dealers or both. For example,any independent broker-dealer will not be greater than 8% for the selling stockholders may:
o enter into transactions with a broker-dealer or affiliatesale of a
broker-dealer or other third party in connection with which
that other party will become a Selling Stockholder and engage
in short sales ofany securities under this prospectus, in which
case the other party may use securities received from the
selling stockholders to close out any short positions;
o sell short the securities under this prospectus and use the
securities held by it to close out any short position;
o enter into options, forwards or other transactions that
require the selling stockholders to deliver, in a transaction
exempt from registrationregistered pursuant Rule 415 under the Securities Act of 1933. Shares may also be sold in one or more of the securities tofollowing transactions: (a) block transactions (which may involve crosses) in which a broker-dealer may sell all or an affiliate of a broker-dealer or other third party who may then become a
Selling Stockholder and publicly resell or otherwise transfer
the securities under this prospectus; or
o loan or pledge the securities to a broker-dealer or an
affiliate of a broker-dealer or other third party who may then
become a Selling Stockholder and sell the loaned securities
or, upon an event of default in the case of a pledge, become a
Selling Stockholder and sell the pledged securities, under
this prospectus.
The selling stockholders have advised us that they have not entered
into any agreements, arrangements or understandings with any underwriter,
broker-dealer or agent regarding the sale of their securities.
The selling stockholders and any broker-dealers that act in connection
with the sale of shares may be "underwriters" within the meaning of Section
2(11) of the Securities Act, and any commissions received by these
broker-dealers or any profit on the resaleportion of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act.
Because selling stockholdersagent but may be "underwriters" within the meaning
of Section 2(11) of the Securities Act, the selling stockholders may be subject
to the prospectus delivery requirements of the Securities Act. Furthermore,
selling stockholders also mayposition and resell all or a portion of the sharesblock as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by the broker-dealer for its own account pursuant to a prospectus supplement; (c) a special offering, an exchange distribution or a secondary distribution in open
marketaccordance with the rules of the American Stock Exchange or other applicable stock exchange rules; (d) ordinary brokerage transactions and transactions in reliance upon Rule 144which a broker-dealer solicits purchasers; (e) sales “at the market” to or through a market maker or into an existing trading market, on an exchange or otherwise, for shares; and (f) sales in other ways not involving market makers or established trading markets, including direct sales to purchasers. Broker-dealers may also receive compensation from purchasers of the shares which is not expected to exceed that customary in the types of transactions involved.
Any underwriting compensation paid by us to underwriters or agents in connection with the offering of these securities, and any discounts or concessions or commissions allowed by underwriters to participating dealers, will be set forth in the applicable prospectus supplement. Dealers and agents participating in the distribution of the securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the securities may be deemed to be underwriting discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements entered into with us, to indemnification against and contribution toward certain civil liabilities, including liabilities under the Securities Act provided
they meetof 1933. Unless otherwise set forth in the criteriaaccompanying prospectus supplement, the obligations of any underwriters to purchase any of these securities will be subject to certain conditions precedent, and conformthe underwriters will be obligated to purchase all of the requirementsseries of securities, if any are purchased.
Underwriters, dealers and agents may engage in transactions with, or perform services for, us and our affiliates in the ordinary course of business.
In connection with offering securities pursuant to this prospectus, certain underwriters, and selling group members and their respective affiliates, may engage in transactions that stabilize, maintain or otherwise affect the market price of the applicable securities. These transactions may include stabilization transactions effected in accordance with Rule
144. We have
informed the selling stockholders that the anti-manipulative provisions104 of Regulation M promulgated
under the Exchange Act may apply to their sales in the
market.
In addition, if we are notified by a selling stockholder that a donee,
pledgee or transferee or other successor in interest intends to sell more than
500 shares, a supplement to this prospectus will be filed.
At any time a particular offer of resale shares is made, to the extent
required, a supplemental prospectus will be distributed which will set forth the
number of resale shares offered and the terms of the offering including the name
or names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the resale shares purchased from the selling stockholders, any
discounts, commission and other items constituting compensation from the selling
stockholders and any discounts, concessions or commissions allowed or paid to
dealers. We do not presently intend to use any forms of prospectus other than
print.
30
In order to comply with the securities laws of certain states, if
applicable, the resale shares may be sold in such jurisdictions only through
registered or licensed brokers or dealers.
The selling stockholders and any other persons participating in the
sale or distribution of the resale shares will be subject to the federal
securities laws and must comply with certain terms of the requirements of the
Securities Act and the Exchange Act, including Rule 10b-5 and Regulation M under
the Exchange Act. These rules and regulations may limit the timing of purchases
and sales of shares of our AR-Acacia Technologies stock by the selling
stockholders or other persons. UnderSEC pursuant to which these rules and regulations, generally,
except as otherwise permitted thereby, selling stockholders and other persons participating in the sale or distribution:
o may not engage in any stabilization activity in connection
with our AR-Acacia Technologies stock,
o must furnish each broker which offers resale shares covered by
this prospectus with the number of copies of this prospectus
and any supplement which are required by the broker, and
o may not bid for or purchase securities for the purpose of stabilizing their market price. The underwriters in an offering of securities may also create a “short position” for their account by selling more securities in connection with the offering than they are committed to purchase from us. In that case, the underwriters could cover all or a portion of the short position by either purchasing securities in the open market following completion of the offering of these securities or by exercising any over-allotment option granted to them by us. In addition, the managing underwriter may impose “penalty bids” under contractual arrangements with other underwriters, which means that they can reclaim from an underwriter (or any selling group member participating in the offering) for the account of ourthe other underwriters, the selling concession for the securities that are distributed in the offering but subsequently purchased for the account of the underwriters in the open market. Any of the transactions described in this paragraph or comparable transactions that are described in any accompanying prospectus supplement may result in the maintenance of the price of the securities at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph or in an accompanying prospectus supplement are required to be taken by any underwriters and, if they are undertaken, may be discontinued at any time.
Our AR-CombiMatrix stock is listed on the Nasdaq National Market under the symbol “CBMX.” Our AR-Acacia Technologies stock is listed on the Nasdaq National Market under the symbol “ACTG.” Any underwriters or attemptagents to induce any personor through which securities are sold by us may make a market in the securities, but these underwriters or agents will not be obligated to purchasedo so and any of our
AR-Acacia Technologies stock other thanthem may discontinue any market making at any time without notice. No assurance can be given as permitted under the
Exchange Act.
We will make copies of this prospectus available to the selling
stockholders, and we have informed the selling stockholders of the need for
delivery of a copy of this prospectus to each purchaser of the resale shares
prior to or at the time of any sale of the resale shares offered hereby.
We may suspend the effectiveness or useliquidity of or trading under, the
registration statement if we determine that the sale ofmarket for any securities pursuant
to the registration statement would:
o materially impede, delay or interfere with any material
pending or proposed financing, acquisition, corporate
reorganization or other similar transaction involving the
company for which we have authorized negotiations; materially
adversely impair the consummation of any pending or proposed
material offering or sale of any class of securitiessold by the
company, or
o require disclosure of material nonpublic information that, if
disclosed at such time, would be materially harmful to the
interests of the company and our stockholders.
We will pay all costs and expenses associated with registering and
qualifying the resale shares being offered hereunder with the SEC and any state
securities agencies. The selling stockholders will bear their own legal fees and
costs and all commissions, discounts and expenses of underwriters or brokers, if
any, attributable to the sales of the shares.
We and the selling stockholders have agreed to indemnify each other
against certain liabilities that could arise from the registration and sale of
the shares.
us.
EXPERTS
The financial statements
of Acacia Research Corporation and
management'smanagement’s assessment of the effectiveness of internal control over financial reporting (which is included in
Management'sManagement’s Report on Internal Control over Financial Reporting)
of Acacia
Research Corporation incorporated in this
prospectusProspectus by reference to the Annual Report on Form 10-K
of Acacia Research Corporation for the year ended December 31,
2004,2005 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The financial statements of Acacia Technologies group incorporated in
this prospectus by reference to the Annual Report on Form 10-K of Acacia
Research Corporation for the year ended December 31, 2004 have been so included
in reliance on the report (which contains an explanatory paragraph relating to
Acacia Technologies group being a division of Acacia Research Corporation as
described in Note 1 to the Acacia Technologies group financial statements) of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
31
The financial statements of CombiMatrix group incorporated in this
prospectus by reference to the Annual Report on Form 10-K of Acacia Research
Corporation for the year ended December 31, 2004 have been so included in
reliance on the report (which contains an explanatory paragraph relating to
CombiMatrix group being a division of Acacia Research Corporation as described
in Note 1 to the CombiMatrix group financial statements) of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
Certain legal matters in connection with this prospectus will be passed upon for us by Greenberg Traurig, LLP. Greenberg Traurig, LLP and its attorneys
hold no shares of our AR-Acacia Technologies stock or other securities.
WHERE YOU CAN FIND MORE INFORMATION
We electronically file reports, proxy and information statements and other information with the Securities and Exchange Commission. The public may read and copy any materials we file with the SEC at the SEC'sSEC’s Public Reference Room at 450 Fifth100 F Street, N.W.N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. Our Internet address is http://www.acaciaresearch.com.
MATERIAL CHANGES
The condensed consolidated pro forma financial statements that give
effect to the company's acquisition of certain subsidiary companies of Global
Patent Holdings, LLC as of December 31, 2004 and for the year then ended and the
audited financial statements of the businesses acquired from Global Patent
Holdings, LLC as of December 31, 2004 and for the year then ended, have been
included as an amendment to our Form 8-K filed with the SEC on April 11, 2005.
www.acaciares.com.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are specifically incorporated by reference into this prospectus:
(1) Our Annual Report on Form 10-K for the year ended December 31,
2004, filed with the SEC on March 15, 2005;
(2) Our Proxy Statement on Form DEF 14A filed with the SEC on
April 1, 2005, for our annual meeting of stockholders to be
held on May 10, 2005;
(3) Our Current Report on Form 8-K/A filed with the SEC on April
11, 2005
(4) The description of the AR-Acacia Technologies stock included
in our registration statement on Form 8-A, filed with the SEC
on December 19, 2002; and
(5) All documents that we file with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering.
| (1) | Our Annual Report on Form 10-K for the year ended December 31, 2005, filed with the SEC on March 16, 2006; |
| (2) | Our current report on Form 8-K filed with the SEC on January 9, 2006; |
| (3) | Our current report on Form 8-K filed with the SEC on January 26, 2006; |
| (4) | Our current report on Form 8-K filed with the SEC on February 13, 2006; |
| (5) | Our current report on Form 8-K filed with the SEC on February 21, 2006; |
| (6) | Our current report on Form 8-K filed with the SEC on April 20, 2006; |
| (7) | The description of our AR-CombiMatrix stock and AR-Acacia Technologies stock contained in the Registration Statement on Form 8-A as filed with the Commission on December 19, 2002; |
| (8) | All documents that we file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the initial registration statement and prior to effectiveness of the registration statement; and |
| (9) | All documents that we file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering. |
We will provide each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the information that has been incorporated by reference in this prospectus but not delivered with the prospectus. We will provide this information upon written or oral request at no charge to the requester. The request for this information must be made to the following:
Investor Relations
Acacia Research Corporation
500 Newport Center Drive, 7th Floor
Newport Beach, California 92660
(949) 480-8300
32
======================================= =================================
YOU SHOULD RELY ONLY ON THE INFORMATION 3,938,832 Shares
CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE ACACIA
SELLING STOCKHOLDERS ARE OFFERING TO RESEARCH
SELL, AND SEEKING OFFERS TO BUY, SHARES CORPORATION
OF OUR AR-ACACIA TECHNOLOGIES STOCK ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES
ARE PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS
OF THE DATE OF THIS PROSPECTUS, AR-ACACIA TECHNOLOGIES STOCK
REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF OUR
AR-ACACIA TECHNOLOGIES STOCK.
----------------
--------------
TABLE OF CONTENTS
PROSPECTUS
PAGE --------------
----
Prospectus Summary.........................1
Risk Factors...............................5
Cautionary Statement Concerning
Forward-Looking Information...........27
UseINDEMNIFICATION
Our officers and directors are required to exercise good faith and high integrity in the management of Proceeds...........................28
Selling Stockholders......................28
Relationshipour affairs. Our charter documents provide, however, that our officers and directors shall have no liability for losses or liabilities incurred, except as such losses or liabilities relate to a violation of Selling
Stockholdersthe duty of loyalty, a breach of good faith, intentional misconduct or knowing violation of law, approval of an improper dividend or stock repurchase or receipt of an improper benefit, in accordance with Delaware law, and they may be indemnified by us to the Company...........29
Planmaximum extent permitted by the Delaware General Corporation law.
Insofar as indemnification for liabilities arising under the Securities Act of
Distribution......................29 ACACIA RESEARCH CORPORATION
Experts...................................31
Legal Matters.............................32 ------------------
Where You Can Find More Information.......32
Material Changes..........................32
Incorporation1933 (the “Act”) may be permitted to directors, officers and controlling persons of
Certain Information
by Reference..........................32
----------------
======================================= =================================
PART II
Information Not Requiredthe registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
| |
|
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS.WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF OUR COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMONSTOCK.
TABLE OF CONTENTS Page | | $75,000,000 ACACIA RESEARCH CORPORATION [LOGO] Acacia Research-CombiMatrix Common Stock Acacia Research - Acacia Technologies Common Stock Warrants |
Prospectus Summary Risk Factors Cautionary Statement Concerning Forward-Looking Information Use of Proceeds Plan of Distribution Experts Legal Matters Where You Can Find More Information Incorporation of Certain Information by Reference Indemnification | 1 3 22 23 23 24 24 24 25 25 | |
PROSPECTUS
Acacia Research Corporation
|
| | |
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various costs and expenses payable by the registrant in connection with the sale of the AR-Acacia Technologiesour common stock being registered. Any broker-dealer discounts and commissions will be
payable by the selling stockholders. Except for the SEC registration fee, all the amounts shown are estimates.
SEC registration fee.................................... $ 2,670.34
Legal fees and expenses................................. 150,000.00
Accounting fees and expenses............................ 15,000.00
Printing and related expenses........................... 1,000.00
Miscellaneous........................................... 250.00
-----------
Total................................................ $168,920.34
===========
| SEC registration fee | | $ | 7,498 | |
| Legal fees and expenses | | | 20,000 | |
| Nasdaq listing fees | | | 135,000 | |
| Accounting fees and expenses | | | 15,000 | |
| Printing and related expenses | | | 10,000 | |
| Miscellaneous | | | 5,000 | |
Total | | $ | 192,498 | |
ITEM 15. INDEMNIFICATION OF OFFICERSDIRECTORS AND DIRECTORS
OFFICERS
Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation - a derivative action), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe their conduct was unlawful.
A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's certificate of incorporation, bylaws, disinterested director vote, stockholder vote, agreement or otherwise.
As permitted by Section 145 of the Delaware General Corporation Law, Article VII of Acacia'sour restated certificate of incorporation provides:
"No
“No person shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, including without limitation for serving on a committee of the Board of Directors, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or hereafter may be amended. If the DGCL is amended after the date of the filing of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended. Any amendment, repeal or modification of this Article VII shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to such amendment, repeal or modification."
”
We have purchased insurance on behalf of any person who is or was a director, officer, employee or agent of our company, or is or was serving at the request of our company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not our company would have the power to indemnify him against such liability under the provisions of our company's restated certificate of incorporation.
II-1
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Member Interest Purchase Agreement (1)
3.1 Restated Certificate of Incorporation (2)
3.2 Bylaws (3)
4.1 Restated Certificate of Incorporation included as Exhibit
3.1 to this Registration Statement
5.1 Opinion of Greenberg Traurig, LLP
10.1 Membership Interest Purchase Agreement (1)
10.2 Registration Rights Agreement (1)
10.3 Consulting Agreement (1)
10.4 Goodwill Purchase Agreement (1)
23.1 Consent of Greenberg Traurig, LLP (included in Exhibit 5.1
hereto)
23.2 Consent of Independent Registered Public Accounting Firm
regarding Acacia Research Corporation
23.3 Consent of Independent Registered Public Accounting Firm
regarding the Acacia Technologies group
23.4 Consent of Independent Registered Public Accounting Firm
regarding the CombiMatrix group
24.1 Resolutions authorizing signature of Chief Executive Officer
and Chief Financial Officer by power of attorney
(included on page II-4)
- -----------
(1) Incorporated by reference to our Current Report on Form 8-K, filed on
February 1, 2005 (SEC File NO. 000-26068).
(2) Incorporated by reference from Appendix B to the Proxy
Statement/Prospectus which formed part of our Registration Statement on
Form S-4 (SEC File No. 333-87654) which became effective on November 8,
2002.
(3) Incorporated by reference to our Quarterly Report on Form 10-Q filed on
August 10, 2001 (SEC File No. 000-26068).
Exhibit Number | Description |
| |
| 4.1 | Restated Certificate of Incorporation (1) |
| |
| 4.2 | Form of Warrant Agreement (2) |
| |
| 5.1 | Opinion of Greenberg Traurig, LLP |
| |
| 23.1 | Consent of PricewaterhouseCoopers LLP (relating to the financial statements of Acacia Research Corporation) |
| |
| 23.2 | Consent of PricewaterhouseCoopers LLP (relating to the financial statements of the Acacia Technologies group) |
| |
| 23.3 | Consent of PricewaterhouseCoopers LLP (relating to the financial statements of the CombiMatrix group) |
| |
| 23.4 | Consent of Greenberg Traurig, LLP (included in Exhibit 5.1 hereto) |
| (1) | Incorporated by reference as Appendix A to the Proxy Statement/Prospectus which formed part of Acacia Research Corporation’s Registration Statement on Form S-4 (SEC File No. 333-87654) which became effective on November 8, 2002. |
| (2) | To be filed as an exhibit to a Current Report on Form 8-K and incorporated herein by reference. |
ITEM 17. UNDERTAKINGSUNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration
statement:
(i) Registration Statement:
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; notwithstanding the foregoing, any increase or decrease in the of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; |
provided, however, that paragraphs (A)(1)(i), (A)(1)(ii) and (A)(1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the planCommission by the registrant pursuant to Section 13 or Section 15(d) of distribution not previously disclosedthe Exchange Act that are incorporated by reference in this Registration Statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein,therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
thereof; and
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
| (ii) | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date. |
(5)That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
B. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Sectionsection 13(a) or Sectionsection 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act)Act of 1934) that is incorporated by reference in the Registration
Statementregistration statement shall be deemed to be a new registration statement relating to the securities offered herein,therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(5)
C. The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference
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in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X isare not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. D. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of
ourits counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by
usit is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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E. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this amended registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newport Beach, State of California, on the 2nd25th day of May, 2005.
ACACIA RESEARCH CORPORATION
By: /s/ PAUL R. RYAN
------------------------------------April, 2006.
| | |
| ACACIA RESEARCH CORPORATION |
|
|
|
| By: | /s/ Paul R. Ryan |
|
|
| Paul R. Ryan, Chief Executive Officer & Chairman |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Paul R. Ryan, Chairmanas his true and Chief Executive Officer
POWER OF ATTORNEY
lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this amended registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Date | | Signature | | Title |
| | | | |
| April 25, 2006 | | /s/ Paul R. Ryan
Paul R. Ryan | | Chief Executive Officer and Chairman May 2, 2005
- ---------------------------------------------- (Principal Executive Officer) Paul R. Ryan
/s/and Chairman of the Board of Directors |
| | | | |
| April 25, 2006 | | /s/ Clayton J. Haynes
Clayton J. Haynes | | Chief Financial Officer (Principal May 2, 2005
- ---------------------------------------------- Financial Officer and Principal Accounting Officer)
Clayton J. Haynes
* |
| | | | |
| April 25, 2006 | | /s/ Robert L. Harris
Robert L. Harris | | President and Director May 2, 2005
- ----------------------------------------------
Robert L. Harris, II
* Director May 2, 2005
- ---------------------------------------------- |
| | | | |
| April 25, 2006 | | /s/ Thomas B. Akin
*
Thomas B. Akin | | Director May 2, 2005
- ---------------------------------------------- |
| | | | |
| April 25, 2006 | | /s/ Rigdon Currie
*
Rigdon Currie | | Director May 2, 2005
- ---------------------------------------------- |
| | | | |
| April 25, 2006 | | /s/ Fred A. de Boom
*
Fred A. de Boom | | Director May 2, 2005
- ---------------------------------------------- |
| | | | |
| April 25, 2006 | | /s/ Edward W. Frykman
*
Edward W. Frykman | | Director May 2, 2005
- ---------------------------------------------- |
| | | | |
| April 25, 2006 | | /s/ G. Louis Graziadio,Gradziadio III
*
G. Louis Gradziadio III | | Director May 2, 2005
- ---------------------------------------------- |
| | | | |
| April 25, 2006 | | /s/ Amit Kumar
* By: /s/ Paul R. Ryan
- ----------------------
Paul R. Ryan,
Attorney-in-Fact
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Amit Kumar | | Director and President/Chief Executive Officer of CombiMatrix Corporation |
Part II- page 5